Egilmez, Gokhan (Ed.

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Agricultural value chain

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 Chapter 1

Agriculture Value Chain as an Alternative to Increase

Better Income’s Distribution: The Case of Indonesia
Adi Djoko Guritno
Adi Djoko Guritno
Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.70141

Abstract
Speciic material handling and treatment for speciic agriculture products is required.
Enhancing the productivity, competitiveness and eiciency of agriculture value chain is
a priority for Indonesia to achieve competitiveness. This chapter discusses the overview
of agriculture value chain in Indonesia and provides case studies related to supply chain
risk management and logistics cost. Then, the author may propose recommendations
to optimize the agricultural value chain. Each agriculture commodity probably has dif-
ferent type of tier, type of supply chain risks, issues and activities which leads to the
diferent proportion of logistics and distribution cost in each tier. The results showed
diferences in strategy either speculation or postponement for inventory management
to improve the value of horticulture along supply chain, while in aquaculture research
also shows the same diferences. Moreover, the value chain analysis helps to identify the
value created by each stakeholder. In the value chain of catchment ish, ship owner plays
the dominant role in the whole income distribution, while in the aquaculture, spreader
get the highest proit margin. Trader gives the highest value added during transportation
but earns the lowest proit. The value chain analysis of fresh vegetables shows the highest
portion of traders in the whole inventory cost.

Keywords: agriculture product, supply chain, risk, strategy, value chain analysis

1. Introduction

Globalization ofers opportunities for the developing countries to expand their business in
both domestic and international markets. Currently, agriculture continues to be a funda-
mental instrument for sustainable development and poverty reduction [1]. Therefore, the

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provided the original work is properly cited. which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited.
4 Agricultural Value Chain

producer needs to strictly compete with other producers and also builds competitive advan-
tage by adding the value of the product. To achieve these goals, controlling activity along the
supply chain of the agriculture commodity is required and necessary starting from the plan-
tation farm to the retailer. Agriculture value chain manages the low of products and infor-
mation along the supply chain by capturing the value added in each stage. It also ofers the
opportunity to reduce the cost and risk along the supply chain. Furthermore, the perishability
of agriculture commodity results in the special material handling and treatment to control the
quality of material. Diferent types of agriculture commodity probably need diferent kinds of
material handling and treatments. More recently, the issues of food safety and food security
become global issues since people are more aware and concern about their health. These con-
ditions encourage the producers to increase their awareness and assure the quality of product
to the customer. Therefore, activities along the supply chain of agricultural product should be
managed by each stakeholder in order to minimize the cost and risk and add the value that
can be perceived by the customer.
Indonesia is one of the developing countries that have great potential in agriculture commod-
ities. Its geographical conditions make Indonesia rich in natural resources especially in agri-
culture products including horticulture, ish and livestock. However, inability of Indonesia
in managing the resources becomes the major constraint. Vegetables are one of the valuable
horticultural commodities in Indonesia. According to Ref. [2], the vegetable production in
Indonesia reached , , tonnes/year for the last years. The national vegetables produc-
tion also increases every year, but this increase of production should be followed by good
quality of vegetables.
Indonesian agro-industry needs to optimize the potential of natural resources by providing
added value along the supply chain. Investigation on the current condition of several agri-
culture products value chain may facilitate the author to identify the obstacles and risks and
determine the appropriate action to deal with these risks in the ield. Managing and con-
trolling the activity along the supply chain will enhance the eiciency of value chain and
minimize the logistics cost. Nevertheless, inadequate infrastructure and lack of coordina-
tion within the supply chain lead to the increasing cost and ineicient low of material and
information. Collaboration between stakeholders in the supply chain, the strategies used and
government support are necessary to optimize the application of agriculture value chain in
Indonesia.
This article aims to provide an overview of the agriculture value chain in Indonesia for several
agriculture commodities such as ish, aquaculture and horticulture commodity. Case studies
related to supply chain risk management SCRM and logistics activity analysis are presented
to evaluate and optimize the potential agriculture in Indonesia. SCRM helps to identify the
potential risk in each tier and to provide the appropriate mitigation to reduce the exposure of
each risk. Furthermore, the analysis of logistics activity in the supply chain by using activity-
based costing is also needed as the supplement to evaluate and improve the agriculture value
chain. Sampling method in these studies used convenience sampling, while the data collec-
tion was done through in-depth interview to each respondent along the supply chain. The
number of respondents in each case study is varied.
 Agriculture Value Chain as an Alternative to Increase Better Income’s Distribution: The Case... 5
http://dx.doi.org/10.5772/intechopen.70141

2. Theoretical background

According to Ref. [3], analysis of the value chain value chain analysis VCA seeks to under-
stand how a business creates value for customers by examining the contribution of difer-
ent activities in the business against the value. A value chain is about linkages generating
value for the consumer. The productivity, eiciency and depth of agricultural value chains
are important elements driving commercial agriculture and agribusiness [ ]. Important barri-
ers for developing country producers in this respect are the lack of an enabling environment
ofering institutional and infrastructural support, availability of resources and eicient and
efective coordination in value chains. In particular, small-scale producers are at a disadvan-
tage because they have litle capital to invest, use traditional techniques and depend on family
labour and lack contact with international market players [ –7].

Two complementary approaches can be followed to support agro-enterprise development for

competitiveness and participation. One is to improve the investment climate to induce the
entry of private investors, particularly small- and medium-sized enterprises SMEs . Surveys
of the rural investment climate in Indonesia, Nicaragua, Sri Lanka and Tanzania indicate that
the lack of rural inance, infrastructure, business and public services is particularly binding.
The other approach targets botlenecks in small- and medium-sized agro-enterprise develop-
ment, particularly in value chains [ ].

According to Ref. [8], factor conditions relate to the nation s endowment with resources such
as physical, human, knowledge, technology and infrastructure. These factors enable or con-
strain value chain upgrading. Moreover, Ref. [ ] revealed that three key elements for a bal-
anced analysis of value chain are network structure, horizontal and vertical market channel
relationships, value added and governance. Moreover, value chain actors may be motivated
to improve their position in the chain by changing their production of value added, their rela-
tionships governance with other actors in the value chain and by choosing diferent market
channels for their products.

SCRM is an atempt to control the risks in the supply chain of a commodity which provides
recommendations for the stakeholders to optimize the supply chain activity. Each tier along
the supply chain may handle diferent kinds of risks in which the activities to prevent the
risks in each tier might be diferent as well [ ]. The practice of SCRM consists of identifying
the risk from the risk owner, analysing the probability and severity of the risk, monitoring the
risk and continuously evaluating the risk.

In most value chains, each activity has a distinct cost structure determined by diferent
cost drivers. Analysing cost requires disaggregating the value chain to identify the relative
importance of each activity with respect to total cost, the cost drivers for each activity, how
cost in one activity inluence the others and which activities should be undertaken or out-
sourced [11].

Several main activities related to logistics are the design of supply chain, procurement or
purchasing, transportation, receiving, warehousing, material handling, distribution, return,
6 Agricultural Value Chain

replacement, disposal of waste and communications. The most important thing in an activity
of logistics is how to make the whole stakeholder in the supply chain working together to
obtain an eicient material low [12].
Calculation of logistics costs in every activity can be used to determine which tier has a domi-
nant proportion of cost against activity [13– ]. The logistics activity along the corn supply
chain is divided into six activities including procurement, material handling, maintenance,
transportation and communication. The logistics cost analysis shows the proportion of logis-
tics cost and its component cost, the most inluence activity on their respective logistics activi-
ties and what activities can be controlled at every tier [16, 17].

From Ref. [18], one underlying aspect to appreciate in terms of customer demand or usage
requirements is the relationship between the customer order-to-fulilment lead-time CLT
and the sum of the supplier order-to-fulilment lead-time SLT , the irm s cycle time CT and
the delivery-to-customer lead-time DTC as shown in Figure 1. CLT denotes the amount of
time a customer is willing to wait, once an order has been placed, to be satisied by the irm
SLT denotes the amount of time the irm is willing to wait for its own wishes to be met by
its suppliers in producing what the customer wants once the customer order is received CT
denotes the amount of time it takes the irm to manufacture and process a customer order
and inally, DTC denotes the amount of time it takes the irm to deliver a completed customer
order to the customer, so that CLT = SLT + CT + DTC.

Figure 1. Lead time approach for inventory classiication.

 Agriculture Value Chain as an Alternative to Increase Better Income’s Distribution: The Case... 7
http://dx.doi.org/10.5772/intechopen.70141

3. Agriculture value chain in Indonesia

Agriculture sector in Indonesia has enormous potential for economic development since
Indonesia s biodiversity becomes the strength and challenge for Indonesia to compete glob-
ally. Consumptive culture which is relatively high in Indonesia needs to be gradually trans-
ferred to the more productive sectors, so that Indonesia will have high competitiveness among
other countries. Several countries in the world such as Japan, China and Thailand were already
focused on the development of agriculture to enhance the country s competitive advantage.
Moreover, one of the problems of agriculture in Indonesia is the inability to provide value
added to the product before selling the product to others. In some cases, Indonesia exports the
raw materials with a relatively cheap price. Then once it arrives at the destination country, they
add value to the raw material by processing it into inished product which is then imported to
Indonesia at a much higher price. It certainly gives a disadvantage for Indonesia. In the national
scale, initial suppliers farmers and ishermen are one of the stakeholders who add the least
value added to the product. It causes the decrease in the proit earned by them and repositions
them as a price taker with low bargaining power. In addition, lack of supervision and assis-
tance from the local government afects the income s distribution within a supply chain.

Currently, agro-industry in Indonesia is rapidly growing from small, medium to large scale.
The existence of agro-industry in Indonesia is particularly important in providing added
value to agricultural commodities through food processing. Agriculture value chain concept
can be applied not only in the scale of production, but also can be implemented on a small
scale for some commodities such as horticulture, rice, isheries and many more. Making a
living in agriculture involves not only selling the product but also various other things in the
form of tourism, sales, processing, seedling, education and many more. By adding the value
of the commodity, it can enhance the price of the product as well. Therefore, the stakeholders
along the value chain can earn more proit.

4. Original case study

Related to agriculture value chain practice in Indonesia, the following are several case stud-
ies related to the application of value chain analysis for several agricultural commodities in
Indonesia.

4.1. Case of fresh catchment sea-ish

Indonesia is one of the developing countries that have great potential in agriculture com-
modities. Its geographical conditions make Indonesia rich in natural resources especially in
agriculture products including ish. In the ish commodity, Indonesia was able to produce
, , tonnes in which it consisted of , , tonnes of fresh catchment sea-ish, herein-
after referred to as catchment ish, and , tonnes of aquaculture ish. Around , ,
tonnes of catchment ish in Indonesia came from coastal area of Java Island [ ]. Catchment
8 Agricultural Value Chain

ish as perishable products requires special material handling during distribution and stor-
age activity. Therefore, each stakeholder along the supply chain should control the quality
of product through the temperature control. Based on Figure 2, the production of catchment
ish signiicantly increases each year. In , the production of catchment ish reached
thousand tonnes, then it increased to thousand tonnes in and thousand tonnes
in . The increase of production did not signiicantly occurred in which only reached
. %, while the increase in reached %.
The increasing number of catchment ish indicates the potential of this commodity in the
future. However, currently, the increase in the quantity of production is not followed by
proper material handling processes in which it may lead to the decrease in the quality of
product. This quality deterioration may impact on the selling price of the product and may
lead to the losses. Practice of cold supply chain management is needed to reduce the risk of
quality deterioration during distribution by maintaining the temperature of catchment ish to
remain at a low temperature which is below °C, so that microbial growth in the product can
be minimized.

Furthermore, there are six main tiers in the supply chain of catchment ish including isher-
men, ship owner, ish auction facility FAF , trader, ish processing units FPUs and end
customer. Data from respondents consisting of ishermen, ship owners, FAFs,
traders and ish processing units FPUs were collected from the coastal area of Java Island.
Fishermen in this study are the ishermen who do not have their own ships so they rent a ship
on vessel providers ship owner and make payment based on the share-ishing. Based on
this condition, ishermen will be the stakeholder who gets the greatest loss if the selling price
is cut down due to the quality deterioration. Furthermore, Ref. [ ] revealed that ishermen
have low bargaining power in term of price, so the government provides ish auction facility
FAF as an infrastructure to enhance the productivity and improve the price of catchment

Figure 2. The production of fresh catchment sea-ish in Indonesia [ ].

 Agriculture Value Chain as an Alternative to Increase Better Income’s Distribution: The Case... 9
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ish in the ishermen stage. FAF facilitates ishermen through ship owner and trader in terms
of ish landing, auction, processing and marketing process. Both ship owner and trader must
pay retribution with the amount of retribution varies for each FAF. However, it is around %
of the total production of catchment ish.

The value added can be enhanced in each tier by optimizing every activity undertaken along the
supply chain. Based on in-depth interview, the current practice of catchment ish supply chain is
not optimal yet since inadequate infrastructure and ineicient activity are the main obstacles. In
order to improve the value added along the supply chain, recognizing the most valuable activ-
ity is necessary to decide which activity could be improved to provide competitive advantage.

4.1.1. Logistics cost of fresh catchment sea-ish

In the practice of cold supply chain, every logistics activity in each tier needs particular cost
to encourage the appropriate temperature for controlling the quality of product. However,
in some cases, the large cost required becomes the constraint in the cold chain practice. The
total cost along the cold supply chain in a whole cannot be separated by any logistics activity
at each tier. In the integrated supply chain system, changing in costs of particular logistics
activity in one tier may afect others and the whole supply chain. The analysis of the logistics
cost along the supply chain of catchment ish thus should be taken to identify the proportion
of logistics costs, determine the cost components of the most inluential and valuable activity
and deine which activities can be controlled to minimize the overall logistics costs. In addi-
tion, the logistics cost analysis can be used as one of the considerations in determining the
selling price and proit margin.

Moreover, ish that had completed the auction process was then placed in a container, such as
Styrofoam or cold box, and ice cube was added to keep the product at the low temperature.
Transportation used for distribution is diferentiated based on the distribution distance where
truck, container or car is used for long distance trip and motor cycle is used for short distance
trip. In the peak season, the catchment ish which are not distributed yet will be stored in a par-
ticular period by trader. Wholesalers will keep them in the cold storage, while the small trad-
ers will keep in the cold box which is illed with ice. According to Ref. [21], temperature of cold
storage which is around from − to − °C may freeze the ish product by turning almost all
the water content in the product into ice because the temperature is under the freezing point of
water. Therefore, the use of cold storage tends to be more optimal to control the quality of ish.

The logistics activity in this case study encompasses procurement, material handling, inven-
tory, transportation, maintenance and information. Calculation of logistics cost is only car-
ried out on the Euthynnus ainis as the most dominant type of catchment ish in this study.
In addition, Figure 3 shows the proportion of logistics cost for non-freezer using the ship
with the cold storage and longer ishing trip and freezer chains using ice cube for storage
during the trip and shorter ishing trip . Based on Figure 2, transportation cost accounts for
the largest portion of the logistics cost with the slight diference between freezer . % and
non-freezer chains . % . It is because the freezer chain requires more fuel for longer trip
and cold storage. For both chains, transportation cost of trader is dominant because traders
deliver large quantity of product with limited capacity of vehicle which leads to the high
10 Agricultural Value Chain

Figure 3. The proportion of logistics cost for each logistics activity.

intensity of delivery. On the other hand, procurement accounts for the second largest portion
and it is only owned by the ishermen. Procurement cost includes needs for ishing and labour
cost which is entirely covered by ishermen. The material handling, maintenance, information
and inventory costs have litle portion in the logistics cost in which total of those four accounts
for less than %.
Furthermore, material handling cost is dominated by the ship owners and traders with the
cost components including post-ishing cost, inspection cost, depreciation of tools and loss
during handling. Post-ishing cost encompasses retribution cost during auction process in the
FAF, which is under the responsibility of ship owner and trader as the participants. The main-
tenance cost of tool and vehicle is dominated by the cost from ishermen, while information
cost comprising of communication bill is dominated by traders and ship owners. Inventory
cost accounts for the smallest portion because catchment ish is fast moving product so that
inventory is not the dominant activity among other logistics activities.
The selling price of catchment ish in the market luctuates signiicantly, ranging from Rp
to , /kg in the ishermen stage and Rp , to , /kg in the trader stage. Based
on the current market price, the market price of catchment ish processed by trader is sold
at average price Rp , /kg, while catchment ish in the ishermen stage is sold at a price
Rp , /kg in average as shown in Figure 4. The large gap occurs in the ship owner stage
because they get the ish from the share-ishing with the higher portion and spend less opera-
tional cost. It is very diicult for the ishermen to get proitable margin since they are respon-
sible for all the operational cost during ishing and share the ishing result with the ship
owner. The ishermen play a role as a price taker because they have low bargaining power,
while the ship owners have higher bargaining power in the auction process. With the material
 Agriculture Value Chain as an Alternative to Increase Better Income’s Distribution: The Case... 11
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handling and information cost ranging from Rp to /kg, the ship owners then sell the
ish at a ranging price from Rp , to , /kg. Total margins in the whole value chain are
Rp freezer and /kg non-freezer with the highest portion in the ship owner stage.
Therefore, in terms of making proit, the highest proit margin ratio is gained by the ship
owner among the value chain players. The high proit margin shows the good achievement
for each stakeholder, but when looking at the whole value chain, unbalance proit margin
leads to ineiciency value chain.

4.1.2. Developing strategies of supply chain

Ineicient value chain of catchment ish can be minimized by balancing proit margin ratio on
each tier. One of them is to replace the share-ishing system into a lease or rental system so that
rental costs incurred depending on the length of rental time and the quantity of ish that isher-
men obtained. Moreover, the increasing demand of catchment ish as the functional product
is an opportunity and challenge for the stakeholders along the value chain. Nevertheless, the
ability to provide appropriate quantity and good quality of products with proitable margins
for every stakeholder is challenging. According to Ref. [22], the implementation of eicient
strategy is the appropriate strategy for functional product where it focuses on the fulilment of
customer demand at the lowest prices by reducing the total cost of the activity with the larg-
est cost. Since the ship owners have less expenditure, this case study focuses on the reducing
cost in the ishermen and trader stages. Fishermen should reduce the procurement cost by
using alternative equipment called rumpon to reduce the use of diesel fuel and by joining
association to be able to aggregate the needs of procurement cost. However, the government
who plays an important role to enhance the eiciency of value chain should provide sustain-
able assistance and training to the ishermen, tighten supervision over the selling price so that
every stakeholder can earn proitable margins, and develop infrastructure to support cold

Figure 4. Value chain of fresh-sea ish.

12 Agricultural Value Chain

chain system through the provision of cold storage that is afordable for ishermen. By using
cold storage, ishermen can get higher quality of product and higher selling price. On the other
hand, trader should consider the Full Truck Load to minimize the transportation cost per unit.

4.2. Case of fresh vegetables

Vegetables are one of the valuable horticultural commodities in Indonesia. The national vegeta-
bles production increases every year which should be followed by good quality of vegetables.
Due to the perishable characteristics of vegetables, they need special handling throughout the
supply chain. This research was conducted in the centre of vegetables in the highland area
which is the Magelang region, Central Java and the Sleman region, Yogyakarta. Three main
tiers involved in the distribution of fresh vegetables are shown in Figure 5.
As it is classiied as fast moving product and having perishable characteristics, vegetables
are not necessary to be kept in the long period of time and it leads to the low inventory
cost along the supply chain. This research revealed that inventory cost of fresh vegetables
accounted for . % of total logistics cost which is equivalent to Rp . /kg. Inventory cost
comprises of holding cost, labour cost and losses during inventory. In addition, Figure 5
shows the increasing portion of inventory cost along the supply chain. Farmer accounts for
only . % of the whole inventory cost, while trader has the largest portion of inventory cost
in the whole supply chain. The holding cost such as electricity and space rental in trader
is higher than in collector and farmer due to the larger number of products being handled
by trader. The storage period also increases as the supply goes to customer since collector
and trader collect fresh vegetables from more than one supplier before distribute to their
customer.

In order to enhance this value chain, both trader and collector should control their inventory
activity by strengthening the integration and communication in terms of quantity demand
among the stakeholder. Therefore, the inventory can be eiciently managed.

In other cases, the study of lead time in the inventory management of fresh vegetables was
conducted in the Yogyakarta region. The data were collected based on purposive sampling
method, followed by in-depth interviews and group discussions to suppliers at each tier.
The results from Ref. [ ] show that several vegetable varieties have positive lead time

Figure 5. The supply chain of fresh vegetables and inventory cost percentage in each tier.
 Agriculture Value Chain as an Alternative to Increase Better Income’s Distribution: The Case... 13
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Vegetables Lead-time (hours) Supply chain Inventory

characteristics management
CLT CT SLT DLT
Non-unique Cabbage 16 3 6 Predicted demand, Speculation
vegetables luctuative
Squash 6 6 consumer s demand,
Scallions 12 2 2 6 reliable supply
chain, predicted
Pakcoy 12 2 2 delivered products
quantity, strong
Chicory 12 bargaining power,
Tomato 6 6 many suppliers

Small tomato 6 6

Unique Broccoli 12 6 6 6 Unpredicted Postponement

vegetables demand, stable
Green letuce 8 consumers demand,
Letuce 8 unreliable supply
chain, unpredicted
Beetroot 12 8 6 6 delivered products
quantity, weak
Red spinach 8 bargaining power,
Kailan 8 few suppliers

Notes CLT customer order-to-delivery lead-time SLT supplier order-to-fulilment lead-time CT irm s cycle time
DLT delivery-to-customer lead-time.

Table 1. Management inventory at supplier level.

CLT > SLT + CT + DTC as characterized by predictable demand and relatively the consumer
preferences change rapidly as shown in Table 1. This type of supply chain is reliable and pre-
dictable in terms of delivery quantities. In this case, supplier has a strong bargaining power,
because they have many suppliers more than farmers . Approximately % of the vari-
eties are non-unique plant such as cabbage, squash, leeks, pack coy, chicory, tomatoes and
small cherry tomatoes.

Meanwhile, % of the rest other farmers grows unique varieties, namely broccoli, letuce,
green letuce, beetroot, red spinach and kaylan. These vegetables have negative lead time
CLT < SLT + CT + DTC as indicated by demand level that is diicult to be predicted but rela-
tively occupy stable consumer preferences. The lead time in this supply chain tends unreliable
due to the luctuation in the quantity of delivery. The bargaining power of suppliers is weak
as it is only supplied by a limited number of farmers.

Based on this fact, the most proper inventory management for non-unique vegetables is
inventory postponement, while the most proper inventory management for non-unique veg-
etables is inventory speculation.

4.3. Case of aquaculture business

During year , aquaculture production showed a positive trends with an increas-

ing reach . %/year on average The positive performance for the value of aquaculture
14 Agricultural Value Chain

production also increases in the same period with an average increase of . %/year.
Meanwhile, demand from Java Island will continue to grow because per capita consumption
of ish in Java Island is still below per capita consumption outside Java Island. This case study
was conducted in the Sleman region and the Klaten region, while Tilapia Oreochromis niloti-
cus and Catish Siluriformes are in the focus of this case study.
The main stakeholders in supply chain of aquaculture consist of six tiers including ish lar-
vae producer, spreader, enlarger, wholesaler collectors , retailer and consumer. In a supply
chain, the amount of value added provided by each tier could be diferent because of their
diferent respective functions in the activities of the supply chain running. In the analysis of
logistics cost, Ref. [22] revealed that procurement activity is accounted for the highest portion
in the total logistics cost of Tilapia and Catish in aquaculture business. Procurement activity
as the initial activity in this aquaculture business is very important because it will determine
the success of the rest of the activities in this business. Good initial activity leads to the good
result and yield. In addition, the second highest cost is material handling.
Margin value is obtained from the diference between selling price and purchasing price.
Figure 6 shows that the highest margin occurs in the spreader stage, while the lowest one is
in the enlarger stage. Spreader gives value added by producing Tilapia with the size equal to
pcs/kg. Diferent margins between the Sleman region and the Klaten region are inlu-
enced by diferences in the production yield of Tilapia ish in each area which may afect the
selling price of the ish. Moreover, distribution margin for Catish between the Sleman and
Klaten regions is not signiicantly diferent Figure 7 due to the similarity of commodity price
in both areas. Similar with Tilapia ish, the highest margin occurs in the spreader stage. On the
other hand, the lowest margin in the value chain of Catish is in the collector stage.
From the calculation of proit margin, diferent proit margins earned by each tier are occurred
as shown in Figures 6 and 7. For aquaculture of Tilapia and Catish, spreader earns for the
highest proit margin among all tiers in both the Sleman and Klaten regions, while wholesaler
or collector earns for the smallest. Moreover, proit margin obtained by Tilapia ish larvae
producer in the Klaten region is smaller than the proit margin of Tilapia ish larvae producer

Figure 6. The value chain of Tilapia ish in the Sleman and Klaten regions.
 Agriculture Value Chain as an Alternative to Increase Better Income’s Distribution: The Case... 15
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Figure 7. The value chain of Catish in Sleman and Klaten region.

in the Sleman region. It is because the water temperature in the Klaten region is lower than
the Sleman region, while the spawning process takes the warm water with the temperature
around °C. This results in the higher use of resources in the Klaten region which leads to
the higher cost to get the same quantity of yield see Figure 6 .

The increasing production of aquaculture followed by the demand of aquaculture is an

opportunity for aquaculture business to rapidly grow. To enhance its proitability and sus-
tainability supply, improvement should be taken into the stakeholder s consideration. Based
on the value chain analysis aforementioned, the ish larvae producer should increase the qual-
ity of spawning process and encourage the use of feed alternative with the similar quality but
with lower cost. As the second tier, spreader should enhance the ability to choose the good
ish seed as well as choose the supplier who is able to provide good quality of ish seed. On
the other hand, vertical integration with the ish larvae producer may also lead to the high
availability of raw material. Next, enlarger should develop feed alternative as a side compo-
nent of main feed with the lower cost and do the push-based strategy. They should also buy
in the large quantity to the big organizations or suppliers in order to get lower price or dis-
count. Employing pull-based strategy, inding many suppliers to maintain the inventory and
enhancing sales volume are the strategies that should be conducted by the wholesalers [23].

5. Concluding remarks

In Indonesia, there are many long supply chains where the role of intermediaries becomes
quite dominant. In many cases, the added value given to the product in each tier of supply
chain is relatively minimal, so that the increase in prices is not followed by the value added of
the product. This has led to a considerable gap between the selling prices received by the ini-
tial suppliers farmer or ishermen and purchasing price paid by the consumer. In addition,
the integration between stakeholders has not been applied so that the proit is not optimal
as a whole. Currently, creating added value can be achieved by understanding the regional
resource, connecting them and disseminate the result.
16 Agricultural Value Chain

In several aforementioned case studies, stakeholders who gain the highest proit are the
intermediary parties with relatively low operational costs or logistics costs. Low bargaining
power of initial supplier farmer or ishermen is still a fundamental obstacle why the proit
earned is sometimes not worth the efort that has been nurtured. In addition, the additional
charges given to the initial supplier are sometimes too big, causing the smaller proit earned.
Inequalities in proit among stakeholders show the ineiciency of supply chain. Furthermore,
value chain analysis can be performed to determine which activities classiied into core and
support activities. Analysis using the cost parameters enables the determination of level
income distribution in a commodity. The analysis can be used to formulate an improvement
strategy. In this case, the government also needs to play an active role in controlling and men-
toring. Therefore, the distribution of proit and the income gap among the stakeholders in a
particular commodity is not too signiicant.

Acknowledgements

Many thanks address to Universitas Gadjah Mada which has been willing to fund this
research through PUPT scheme University Research Excellence term . A sincere
thank you also goes to Ms. Megita Ryanjani Tanuputri who has spent her time to do data pro-
cessing, analysis and preparing this manuscript. Also, thank you to Ms. Nur Rahma Laila, Mr.
Henry Putra Pradana, and Ms. Mutia Laraswati who have enumerated the data and jointly
conducted a ield survey.

Author details

Adi Djoko Guritno

Address all correspondence to adidjoko@tip-ugm.org
Department of Agroindustrial Technology, Faculty of Agricultural Technology, Universitas
Gadjah Mada, Indonesia

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 Chapter 2

SamenMarkt®, a Proposal for Restoring Trust in the

Horticultural Fresh Food Market by Using Multi-Agent
System Technology
Olaf van Kooten, Caroline Nevejan,
Frances
Olaf vanBrazier,
Kooten, Michel OeyNevejan,
Caroline and Coen HubersBrazier,
Frances
Michel Oey and Coen Hubers
Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.70140

Abstract

In the horticultural fresh food supply chain network in the Netherlands, a crisis is emerg-
ing. The market is out of balance and many growers are facing bankruptcy, in the period of
2011–2013, 50% of the growers were not able to pay interest and redemption. Trust between
participants in the supply chain network has decreased. This chapter presents the currently
not established and identiies design requirements for new systems to address this challenge
and provide directions for possible improvement. As a result, this chapter introduces the
concept of SamenMarkt®, a participatory system in which multi-agent system technology
enables distributed price negotiation, distribution and communication between produc-
ers, retailers and consumers. A SWOT analysis of the concept of SamenMarkt® is provided
together with a research and development plan in which simulation and emulation create
the basis for stakeholder- and participant involvement in the design process of a distributed
digital market place. Further research aims to study how SamenMarkt® can provide a solu-
tion space for the emerging global food crises. At present, we are using agent-based model-
ling to simulate the present market and scenarios. The next step will be to build the actual
agent-based platform for real-time negotiations and business intelligence.

Keywords: market analysis, trust conditions, horticultural fresh food supply chain networks,
agent-based simulation, big data

1. Introduction

During the past few decades, Dutch greenhouse vegetable supply chains have been in con-
stant transition. Up to 1996, growers collectively owned their local auction cooperatives. The

© 6 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons
© 2018 The
Attribution Author(s).
License Licensee IntechOpen. This chapter is distributed
(http://creativecommons.org/licenses/by/ under the
. ), which permits terms of the
unrestricted Creative
use, distribution,
Commons
and Attribution
reproduction in any License
medium, (http://creativecommons.org/licenses/by/3.0),
provided the original work is properly cited. which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited.
20 Agricultural Value Chain

auction clock determined the price received for produce per day, all of which, by joint agree-
ment, went ‘through the clock’ as it was termed. These collectives, legal cooperative com-
panies, merged over time into larger regional collectives primarily to improve eiciency,
their position in the market and reduce costs. However, as the market changed, so did the
need for decentralized auctions. In 1996 all but one (i.e. Veiling ZON) of these collectives,
nine in total, merged into one single cooperative organization, Verenigde Tuinbouwveiling
Nederland (VTN, transl. United Horticultural Auction Netherlands) to provide produce on
a weekly basis as requested by retail. VTN s commercial subsidiary, The Greenery BV, rep-
resented the growers. With nearly 90% market share of the Dutch supply, The Greenery
was initially fully conident that they would become the foremost supply chain partner
in Dutch vegetables, with direct sales to retail without in between external trade parties
through acquiring ownership of three major wholesale companies in . Over the years,
however, the market share of The Greenery has dropped from % to less than % for a
number of the product groups.

In the transition to The Greenery, the choice was made to change the market mechanisms
signiicantly. The known and trusted auction mechanism, the clock, was replaced by a much
less transparent mechanism, namely negotiation of deals directly with retailers, negotiated
by traders employed by The Greenery. Growers used to the auction clock as a fair and just
pricing mechanism did not trust the prices set by The Greenery s traders. Within the irst few
years, growers started to leave The Greenery. They set up new cooperative organizations to
organize the sales of their produce. Today instead of the two organizations that were active
in , Veiling ZON and The Greenery, there are now six cooperative organizations that
represent the growers.

Over the same period of time, there has been consolidation and expansion of a small num-
ber of the growers’ companies. The biggest grower in 1996 had roughly 10 ha of glasshouse,
whereas today a small number of growers have well over ha. The increase in scale requires
signiicant inancial investments, most often involving loans from local banks. More volume
means more proit.

The growth was possible due to the potential of the markets in the upcoming Central European
countries, but the credit crises in changed the market almost overnight.

As the prices decreased, an increasing number of growers were faced with serious inancial
problems for which the banks provided litle or no support. In addition, traders introduced
unprecedented volatility into the market by speculation, negotiating prices for virtual produce,
creating the impression of over-supply negatively inluencing price. Ultimately, this had led
to a situation in 2015, in which more than 65% of the growers are struggling to survive [1, 2].

Since , various initiatives have been undertaken to transform the supply chain into a
more rational market orientation. The inancial constraints, however, have strongly inlu-
enced growers lexibility, creativity, and entrepreneurship. Their primary focus is price. The
same holds for other partners in the supply chain: cooperatives and traders. There is deep
mistrust between these parties, making it almost impossible for them to be able to create a
roadmap for change for their future. To survive the horticultural fresh food sector, there will
 SamenMarkt®, a Proposal for Restoring Trust in the Horticultural Fresh Food Market by Using... 21
http://dx.doi.org/10.5772/intechopen.70140

need to be a re-establishment of trust among stakeholders in the supply chain. Trust can only
be re-established if all stakeholders are included in the transformation process to design sus-
tainable survival and well-being for each of the stakeholders.

This chapter introduces the concept of SamenMarkt®, a distributed market concept designed
to re-establish trust between stakeholders in the food supply network using a multi-agent
system-based Internet technology to coordinate demand and supply, supporting multiple
distributed market mechanisms to support the production of horticultural fresh food in rela-
tion to price negotiation, provisioning and distribution of the produced products.

Section 2 presents the current supply chain dynamics using the YUTPA (you in unity of time,
place and action framework to identify requirements for the SamenMarkt® platform. The
YUTPA framework is used to identify factors of trust in relation to survival and well-being.
Section 3 describes the strengths of a multi-agent system approach to system design for dis-
tributed markets within a supply chain. Section 4 presents the concept of SamenMarkt® in
more detail. Section 5 provides an initial impression of the research design and roadmap for
change. Section 6 discusses strengths and weaknesses of the SamenMarkt® proposal.

2. Analysing the current crisis using the YUTPA framework for

identifying factors of trust in relation to survival and well-being

The lack of trust between partners in the supply chain currently prohibits collaboration
between stakeholders to develop a shared roadmap for transformation towards a more
sustainable organization of the horticultural fresh food market. This chapter presents a
YUTPA analysis deined as being with You in Unity of Time, Place and Action of how
trust is established in relation to well-being and survival for each stakeholder in the mar-
ket [3]. The YUTPA framework distinguishes four dimensions of place, time, relation and
action, each with their own diferent factors of signiicance. In a speciic situation, a factor
has speciic values. The values are determined in discussions with stakeholders by posing
questions on the importance and value of each factor in speciic situations [4]. As a result,
trade-ofs for establishing trust are translated into design requirements, in this case for
SamenMarkt® [5].

YUTPA analyses are made for each of the main stakeholders in the horticultural fresh food
market namely: the growers, the cooperatives, the traders, retailers and the consumers [6]. The
trade-ofs for trust in four dimensions of place, time, action and relation for diferent stake-
holders (grower, trader, retailer and consumer) in the horticultural fresh food supply chain
network are discussed below. The requirements for SamenMarkt® are presented in italics.

2.1. Place

• Body sense From consumers perspective, the quality of food afects the experience of
taste, the amount of household waste [7], as well as the contribution of food to their health
22 Agricultural Value Chain

[ ]. From growers perspective, there is a direct relation between the quality of the food and
their personal efort. Many growers work long days and are unsure of the quality of their
produce till the very last moment. In addition, they do not know the price for which they
will be able to sell their produce, creating uncertainty and stress. Traders and retailers do
not have a direct physical relation to the horticultural fresh food produce. They strive for
the best quality at the lowest possible price.

SamenMarkt® needs to represent the physicality of the horticultural fresh food market and to address
the sense of quality of the products.

• Emotional space Growers are proud of their companies. Their physical location demands
continual atention with many factors of uncertainty to the value of their work weather,
quality, prices and timing . The emotional space is deined by uncertainty on the one side
and pride and autonomy on the other side. For traders, the emotional space is deined in
a business environment in which all strive to win and get beter quality for less money.
It is a game-environment where results of activities are only measured in inancial gain.
Some retailers, like the growers, are proud of their business. However, the vast majority
of retail consists of supermarkets in which marketing and management all strive for ef-
icient and successful business. The main driver for retailers is the necessity to have all
products with the proper speciications available every day of the year, no mater how
high the demand is, at the lowest price or at most the same price the competitor is paying.
For consumers, the emotional space is deined by the availability of products, the price,
the appearance, the experience of shopping, the conformity with their life style and the
experience of taste.
SamenMarkt® must contribute to a more balanced and relaxed climate in the supply chain network by
taking away uncertainties and strengthening ties within the supply chain network. Strengthening ties
create understanding for other stakeholders’ positions and increases awareness of interdependencies
in the supply chain network. Individual acceleration needs to be tempered by the context of the whole
network.

• Environmental impact: For growers, a sustainable environmental impact is very impor-

tant. It deines the value and quality of their products. The weather, the land, fertility and
possible pollution are all factors of importance to growers. Traders, retailers and consum-
ers are rarely confronted with environmental impact. They expect the grower to deal with
these aspects.

SamenMarkt® should ofer insight and respect for the growers’ practice in dealing with environmental
impact.

• Situated agency: In the current horticultural fresh food market in the Netherlands, it seems
that only the traders and the retailers have the sole power to inluence the supply chain
network [9]. They rule negotiation processes and are free, for example, to create virtual
produce to lower prices. Consumers can only buy or not buy, growers produce as much
as possible. The communication between consumers and producers is blocked and by 2015
completely dependent on the price negotiation between traders and retailers who do not
ofer transparency, not even to the growers.
 SamenMarkt®, a Proposal for Restoring Trust in the Horticultural Fresh Food Market by Using... 23
http://dx.doi.org/10.5772/intechopen.70140

SamenMarkt® needs to ofer more agency to growers in the supply chain network. Growers themselves
need to be prepared and facilitated to this purpose. Consumer participation is carefully monitored
by retail organizations to anticipate behaviour on the basis of previous buying behaviour. Consumer
agency, including awareness and responsibility, can be ameliorated. Traders and retailers determine
price. They need to provide more transparency in what they do, the prices they make, the arguments
they use and the qualities they deliver.

2.2. Time

• Duration of engagement For retailers and traders, the duration of engagement is very difer-
ent to the duration of engagement of the growers and to the duration of the engagement of the
consumers. Currently, as the produce travels through the supply chain network, engagement
stops when it enters a next step in the supply chain network, i.e. as the result of change of
ownership. Growers have no insight into what happens after a trader has bought the goods.
Retailers are unaware of what growers do consumers are unaware of how quality relates to
price. Duration of engagement of one stakeholder in the supply chain network stops when the
next stakeholder takes over. Only the produce ‘knows’ what happens. For the traders on the
short term, this lack of transparency ofers opportunities for great bargains. On the long term,
this lack of transparency, due to an impaired market insight potentially erodes the mecha-
nism of supply and demand undermining the present production system of the sector. As a
result, the Netherlands vegetable market might become totally dependent on import [10, 2].

SamenMarkt® needs to allow for diferent durations of engagement of all stakeholders to prevent the
supply chain network becoming a series of broken intervals in which anything can happen and no one is
in control. A well-designed duration of engagement between stakeholders allows for feedback, learning
curves and adaptation and as such increases trust.
• Integrating rhythm In a supply chain network, rhythm in interaction between the diferent
stakeholders is crucial for success. Such rhythm can be orchestrated for diferent reasons.
The rhythm in the current horticultural fresh food supply chain network is deined by re-
tail’s demand for ‘pallets’ of produce [7]. Traders seek trailers, inside the Netherlands or out-
side. Growers have a small window within which they option to determine when to place
their products on the market, when to make the products available for which price. The
longer they wait in a week, the lower or higher the prices may become. Consumers are often
completely unaware of how produce comes to the shelves in the supermarket. They demand
good quality and divers products for litle money throughout the whole year [11], where a
few years ago consumers knew the season of speciic vegetables and aware of the charac-
ter of harvests. Also, consumer behaviour is only measured by data of buying and not by
qualitative research about quality of food, ways of producing food [12]. The rising economic
signiicance of biological food produce indicates that consumers are sensitive to these issues.

SamenMarkt® needs to facilitate alternative ways for integrating rhythm in the supply chain network.
New ways of information sharing between all stakeholders in the supply chain network can create novel
ways of establishing such rhythms. In such novel ways, autonomy of each stakeholder, as well as inter-
dependency between stakeholders, needs to be facilitated.
24 Agricultural Value Chain

• Synchronizing performance: When doing business, stakeholders have to synchronize

their performance during negotiation. Currently for the growers, the traders and the re-
tailers, such synchronization is solely determined by price strategy and politics. There is
no rhythm on which they can build trust. It is a ‘hit and run’ climate in which each party
hopes to survive. There is no synchronization with the practice of the grower. All adapt
to the intensely luctuating prices. For example, the lower auction FloraHolland, owned
by the growers, provides a more stable market. Consumers do not need to synchronize
their performance with that of the growers: they buy what is available. To a given extent,
however, growers synchronize their performance with the consumers, for example near
Mother s Day or Valentine s Day by storing products in order to have suicient supply for
the enormous demand, with a consequent deterioration of the quality.

SamenMarkt® needs to facilitate new ways of synchronizing performance. Building on rhythm and
synchronizing both with the growing of products and needs and preferences of consumers. Not only
price should determine synchronization between participants in the supply chain. Quality and joint
efort are also triggers for creating sustainable rhythm [10].

• Making moments to signify: Consumers can enjoy buying the right produce, at the right
time enabling them to prepare good food at home. Retailers and traders do not celebrate
or mourn speciic moments in relation to the products other than those related to price.
For growers, the relation with the product is much deeper. In family gatherings, in church
and other moments when people gather, their produce is discussed. In local communities,
harvest feasts mirror important moments. Towns celebrate, for example, the irst white
asparagus. In a diferent way, supermarkets use this need for making moments to signify
in marketing campaigns around Christmas, Easter, the Sugar Feast, etc. connecting certain
products to speciic celebrations.

SamenMarkt® needs to facilitate the making of speciic moments in time when all involved in the supply
chain network meet and create shared meaning in participation in SamenMarkt® to sustain duration
of engagement, to make synchronizing performance easier (especially when most communication is via
phone or Internet) and to integrate rhythms.

2.3. Relation

• Role: Currently, roles of all stakeholders are very distinct, but also limited to tasks at hand.
Growers produce the products and are not involved in the organization of the market.
Traders and retailers determine price, and most often do not directly contribute to how
and which kinds of products with speciic quality are grown. Consumers buy the produce
ofered. This division of roles seems straightforward, yet the fragmentation and the lack of
healthy communication as a result cause the instable market dynamics in price and quality
that now characterize the horticultural fresh food market [1].

SamenMarkt® needs to be designed for participation of all stakeholders with speciic roles in the supply
chain network to enable communication between diferent roles that supports interaction, transparency
and situated agency.
 SamenMarkt®, a Proposal for Restoring Trust in the Horticultural Fresh Food Market by Using... 25
http://dx.doi.org/10.5772/intechopen.70140

• Reputation: Communication between growers and consumers is fundamental for building

a reliable reputation system. For example, branding enables growers to communicate with
consumers, which can create a reputation. Current market dynamics, however, mostly pre-
vents such communication. Unless the grower is involved with the traders and retailers,
prices of the quality products are subjected to the wild west market dynamics that cur-
rently characterize the price ights between traders and retailers [13].
SamenMarkt® needs to build a reliable reputation system based on quality of fresh food products facili-
tating communication between growers and producers and allowing traders and retailers to contribute
in constructive ways to a shared reputation system.

• Engagement: Currently, engagement is intense and deined by the speciic task and func-
tion that stakeholders hold in the supply chain network. Frustration and lack of trust, lack
of information and lack of communication, currently, deine this engagement, creating an
unbalanced market. The banks, not part of the analyses of this chapter, play a disruptive
role in stakeholder engagement by forcing ‘debt politics’ into the supply chain network.
The huge inancial debt of some growers deines their engagement in the supply chain
network. Their panic and stress undermine the market (personal communication of several
bankers).

SamenMarkt® needs to create a reliable and trustworthy environment in which all stakeholders partici-
pate in which exploitation and betrayal are not rewarding. SamenMarkt® needs to build new alliances
between stakeholders in the supply chain network.
• Communion: No processes currently exit where all stakeholders together create meaning
and signiicance in and about the supply chain network as a whole. Growers meet at family
parties, traders and retail meet at conferences and fairs and consumers see each other shop
in the supermarket. In other times and in other places, celebrating a harvest was common
and fundamental to the community. Such celebrations inspire the community and help
people to sustain and survive the hardship of life to which the hunting, gathering and
production of food largely contribute. The well-known tragedy of the commons [14] indi-
cates the need for processes of shared meaning, also for mundane things like food. Such
processes of meaning help people to know what is good to do and what is not good to do.
This can efectively balance the psychological realities with the sociological and economic
realities in a shared ethical framework.
SamenMarkt® needs to facilitate processes of ‘shared meaning’ creation. In such processes of shared
meaning, cultural knowledge helps to clarify what is good to do and what is not good to do in the social
and economic reality of the supply chain network. Processes for shared meaning embody the ethical
dimension of market dynamics [15].

2.4. Action

• Tuning (i.e. synchronizing physical and mental actions with the requirements of the
context): When growing horticultural fresh food, one needs to tune to the growing pro-
cess and one needs to be sensitive and adapt to environmental impact and other factors
26 Agricultural Value Chain

for doing the right thing at the right time with the growing tomato. Growers tune to their
produce. Consumers, when preparing food, also ‘tune’ to the produce at hand. Can it be
used for a salad, or is it too ripe already and should it be used for a curry? Retailers also
tune to the materiality of the food. Fresh food needs a speciic ripeness when sold unsold
goods need to be stored and may have to be presented diferently in combination with
other goods, as prepared food already, as a bargain, etc.). Traders, however, do not tune to
the materiality of the food. Food has a monetary value. For traders, scarcity and abundance
are price drivers. Also, when the Dutch market does not have what they need, at the right
price, traders import or export goods from the rest of the European market and beyond.
The market is also changing: the demand for locally produced food, for example, is increas-
ing signiicantly both in Europe as well as in the USA [16].

SamenMarkt® needs to include representation of the materiality of fresh food produce making it pos-
sible for all stakeholders in the network, including the traders, to tune to each other and to anticipate
necessary adaptation.

• Reciprocity: (i.e. mutual dependence [17]): Reciprocity contributes to the establishment of

trust only within certain circles of growers. Within these circles, growers share information,
share tools and ideas with speciic other growers, for example within growers associations.
Reciprocity plays a small role in the larger supply chain network. Stakeholders do business
with each other, but the increasing need for sourcing reliability of the retailers and their
service providers induces a trend towards more vertical reciprocity in the supply chain.

SamenMarkt® needs to facilitate processes of reciprocity in sharing information and communication.

Such a culture will need time to develop. Especially in relation to ‘making moments to signify’ such a
culture can emerge.

• Negotiation: All stakeholders in the supply chain network negotiate with each other. These
negotiations are characterized by hard market dynamics focused on the short-term proit,
without any consideration of negative consequences for each other. Prices are deined by
market dynamics in which production costs are not considered to be relevant. The price is
usually set at the start of the week by the major retailer in North-West Europe (personal
communication by traders). Surplus of products is either just destroyed or causes erosion
of margins [7, ]. The results of negotiations create an unbalanced market in which prices
luctuate signiicantly per day. As a result, growers companies face bankruptcy and Dutch
food markets are increasingly dependent on import and export. Traders and retailers maxi-
mize their proit, and consumers are mostly unaware of these dynamics.
SamenMarkt® needs to ofer new price dynamics to which production and distribution costs as well as
expected consumption are foundational. Price mechanisms need to create a more balanced market in
which all stakeholders can earn a decent living.

• Quality of deeds: Diferent activities in the supply chain network are speciic for each
stakeholder and are deined by producing speciic quality and quantity of the produced
and traded goods. The only actions that deine what happens next in the network are price
negotiations. Investment in new qualities of products, innovation techniques and new alli-
ances is currently hindered by the hard price dynamics.
 SamenMarkt®, a Proposal for Restoring Trust in the Horticultural Fresh Food Market by Using... 27
http://dx.doi.org/10.5772/intechopen.70140

SamenMarkt® needs to open up the space for innovation of quality of products and growing, branding
and marketing techniques. When price dynamics are in more balance such a space will emerge and
stakeholders can make calculated risks for investing in innovation.

2.5. Discussion of the YUTPA analyses

The results of the analyses above are expressed in indicative values based on perceptions and
arguments for each of the factors in the four dimensions, depicted in Figure 1 in a general
YUTPA graph. Note that maximum trust is achieved when all factors have a maximum value.
This YUTPA graph indicates that trust in the current market is based in the irst place on
stakeholders’ roles in the network and the negotiations they perform. Synchronizing perfor-
mance and quality of deeds contribute to the establishment of trust in the current situation.

Figure 1. The YUTPA analyses of the current supply chain network in the horticultural fresh food sector show a
signiicant lack of trust between participants the length of the arrows are indicative for the Dutch situation and based
on interviews, they are not quantitative .
28 Agricultural Value Chain

SamenMarkt® will need to be designed to focus on designing speciic factors in each dimen-
sion for re-establishing trust in the horticultural supply chain network. Between these factors,
trade-ofs can be established.
In the dimension of relation , a beter reputation system can ofer more transparency in the
relations between participants. As a result, also ‘roles’ and ‘engagement’ will improve and
participation in the supply chain network will engender more trust. Participatory systems can
ofer such a reputation system.
Designing the time dimension has great potential for improving the establishment of trust
in the supply chain network. An elaborate design of ‘integrating rhythm’, ‘synchronizing
performance’ and ‘duration of engagement’ can facilitate a larger awareness of being part
of the larger whole of the supply chain network in which one participates. Communication
in participatory systems can facilitate such trust interventions in the time dimension for all
stakeholders involved.
For the place dimension, an elaborate design of situated agency in the diferent roles and
responsibilities at distinct times will generate a more balanced emotional space in which
awareness of others—in other places yet part of the same supply chain network—contributes
to establishing trust. A participatory system can design such situated agency and the ability
to adapt situated agencies over time.
In the dimension of action , in particular, the tuning of actions between the diferent partici-
pants needs to be facilitated. When tuning is improved, negotiations tend to result in win/win
outcomes. Participatory systems can contribute to such tuning by communicating and antici-
pating certain development of other participants in the supply chain network. SamenMarkt®
also needs to support the space for innovation of the quality of deeds both actions and activi-
ties by creating space and time for this as well as inding a way to validate such eforts.

Currently, 30 interviews with stakeholders are being performed with parties in the horti-
cultural fresh food supply chain network to elicit more detailed design requirements for
SamenMarkt® and the transformation process.

3. Participatory system for the horticultural fresh food market

Participatory systems in today’s networked society are characterized by the potential, scale
and speed of distributing information and communication that technology can provide
[19–22]. Participatory systems are social-technical systems designed to support participation
through engagement, empowerment and trust, enabling participants to act and take respon-
sibility for their actions.

SamenMarkt® is to be a participatory system—a social technical system enabled by distributed

information and coordination technology. Modelled and implemented as a multi-agent system,
SamenMarkt® is a large-scale distributed market system in which software agents (small piece
of code that can run on a computer as well as in the cloud and act autonomously on behalf of a
user) representing their own stakeholders, negotiate terms of trade and agreement, in multiple
local markets across the world. To this purpose, agents are able to reason, learn and interact
 SamenMarkt®, a Proposal for Restoring Trust in the Horticultural Fresh Food Market by Using... 29
http://dx.doi.org/10.5772/intechopen.70140

with other software agents and human stakeholders. Agents reason with their own knowl-
edge, with the knowledge they have received from other agents and with the knowledge they
have observed and acquired from their interactions with the environment, and act [23]. Agents
are capable of negotiating on behalf of their owners, in distributed markets at negligible cost
and speed, given the relevant knowledge, and rules of the game. They can, for example, bid at
auctions, and/or negotiate the terms of an agreement with a consumer or a retailer. Agents can
also be designed to organize the logistics of transportation and/or inancial transactions, given
suicient knowledge. Agent technology is currently being used within many existing markets
in which negotiations are multiple (e.g. between producers and consumers in the energy mar-
ket) and complexity high [24]. Agents are also used for negotiations in which identity is to be
protected, e.g. chemical auctions, they negotiate agreements and perform transactions in sup-
ply chain networks, they regulate production lines, control production of oil and gas produc-
tions, perform scheduling for call centres, provide recommendations and plan trips.
How can a multi-agent market system for the horticultural fresh food market be designed?
We are at present developing a market simulation with agent-based modelling in order
to determine the prerequisites for such a market. In the last phase of our project, diferent
market mechanisms will be designed and evaluated ranging from distributed auctions to
negotiation. Growers will be represented by their own agents agents that have been
instructed about the produce they are ofering, the minimum price, quality speciications, vol-
ume, shelf-life, date of availability, sustainability, etc. Stakeholders (retailers or consumers/
groups of consumers) wishing to procure produce are represented by their own agents each
of which knows their owner’s wishes and preferences. Logistics providers in turn have their
own agents with their own knowledge of transport, price, ecology friendliness, speed and
services with which they can negotiate propositions. And distribution centres, retail stores
and/or online sales providers can ofer their services through their own agents.
AgentScape® hosts these agents and their negotiations. Once agents have devised one or more
(possible) agreements between producers, logistic providers, distribution agencies and/or
consumers these agreements, commitment is needed. Commitment can either (1) automati-
cally be efectuated by the stakeholders with prior authorization from their owners or sent
to the stakeholders whom, in turn, close the deals themselves with the parties involved. This
second option is the option to be pursued in this project. Note that details of an agreement are
only known to the participants involved.
However, knowledge can be anonymously aggregated and made available to all stakehold-
ers, e.g. total market supply and demand, and average price at any one moment in time and
over time (aggregated from all local markets), average price. This information would make it
possible for all stakeholders (and their agents) in this system to be well informed with insight
into the luctuations in supply, demand and price over any given period of interest, i.e. busi-
ness intelligence. This situation is comparable to stock market exchanges, where supply and
demand are known at any point in time, but not the details of the individual buyers. The same
is possible for the fresh vegetable and fruit market. Note that the SamenMarkt® will also need
to include agents for logistics of delivery.
This is a complex market, but with the distributed internet technology, it is feasible to implement
a digital trading platform that can comply with all the previous constraints, i.e. SamenMarkt®.
It will create an open market situation, where price information is transparent, the transaction
30 Agricultural Value Chain

costs are minimal and all necessary market information is available free of charge. Provided
the interface to use this agent-based market is user friendly, the inancial transactions are sui-
ciently secured and if a suicient number of actors take part in this market, the trustworthiness
of this marketplace will create more room for a beter and more innovative and sustainable
(less waste) development of the entire fresh food network [25].

4. Strength and weaknesses of SamenMarkt®

An initial SWOT (strengths, weaknesses, opportunities and threat) analysis based on expert
insight, conducted by authors shows the following issues of concern.

SWOT analysis is an acronym for strengths, weaknesses, opportunities, and threats and is a
structured planning method that evaluates those four elements of an organization, project or
business venture [26]. By analysing the interviews in total and scoring recurring remarks,
we performed the SWOT analysis according to Panagiotou [27].

Strengths:

1. Supply and demand are real

2. Price speculations become obsolete

3. Reduction in transaction costs

4. Open communication between all actors in the network

5. Producers can communicate the story of the products

6. Consumers can communicate explicit and latent desires

7. Market intelligence is available for everyone

8. Trust in the supply chain is re-established.

Weaknesses:

1. A large proportion of stakeholders need to participate for SamenMarkt® to be successful

2. Transition to sharing in information is diicult without visible gain beforehand

3. Large-scale reselling becomes visible

4. Physicality and quality of products might need to be certiied

5. Financial transactions need to be anonymous, while the system needs to ofer transparency

6. Laws on competition regulation by the Dutch and European authorities.

 SamenMarkt®, a Proposal for Restoring Trust in the Horticultural Fresh Food Market by Using... 31
http://dx.doi.org/10.5772/intechopen.70140

Opportunities:

1. Tuning of production with the expected consumption

2. Diminution of waste

3. Eiciency of logistic services

4. Incorporating physical measurements in the logistic process

5. Quality controlled logistics and certiication

6. Optimal positioning of products for consumption

7. Creating a sustainable supply chain network in which all stakeholders can survive and be
well.

Threats:

1. Obliterate investments in present day supply chains

2. Fear of losing position in the new market place

3. Neophobia, i.e. fear of new things/situations.

4. Insuicient ease of use

5. Not enough lexibility

6. Not enough inancial security.

The SWOT analysis of SamenMarkt® indicates a ‘high risk-high gain’ concept [27]. The busi-
ness model will need to incorporate an elaborate transition plan for SamenMarkt® to be suc-
cessful. Special atention is needed for the user interfaces for the diferent stakeholders and
transparency of the overall system. The initiated advisory board in which both growers and
traders are represented helps to identify possible issues in time and also helps with creating
support for this research.

5. Research design for the creation of SamenMarkt®

The following steps have been identiied in the iterative design process for SamenMarkt®.

Phase 1

1. Formulation of concept SamenMarkt® on the basis of YUTPA analyses of the current sup-
ply chain network of tomatoes.
32 Agricultural Value Chain

2. Funding and partners are identiied and approached, the advisory board is created. The
advisory board composed of industry experts functions as sounding board for the research.

Phase 2

1. Thirty interviews identifying local dynamics in the supply chain have been carried out to
validate the initial YUTPA analysis and ine tune design requirements Figure 2).

2. The irst simulation model is created. Advisory board of horticulture sector guides this
simulation.

3. Validation of the irst simulation in workshop with diferent stakeholders in the supply
chain network of the horticulture sector in the Netherlands.

Figure 2. Using the YUTPA framework to identify design requirements for SamenMarkt®, a new solution space for the
horticultural fresh food sector.
 SamenMarkt®, a Proposal for Restoring Trust in the Horticultural Fresh Food Market by Using... 33
http://dx.doi.org/10.5772/intechopen.70140

Phase 3

1. Development business case and governance structure of SamenMarkt®.

2. Second distributed model by design team and advisory board of the horticulture sector.

3. Series of validations with diferent stakeholders in horticultural supply chain network of

fresh food.

4. Orchestration of transformation processes.

Phase 4

1. Identifying investors, owners and shareholders SamenMarkt®

2. Acquiring support form societal and business stakeholders government, inancial sector,
international partners)

3. Establishing business and governance structures

4. Introduction orchestration transition to SamenMarkt®.

The irst phase of SamenMarkt® is carried out and inanced by TU Delft and Hogeschool
Inholland in 2012–2014. The second phase started as of January 2015–June 2015. In the second
phase, further funding and partnerships are acquired. Phase three is expected to last between
September and September after which phase four can start. By September ,
SamenMarkt® can be a sustainable functioning market in which all participants can survive
and be well.

6. Conclusion

The present simulation model of the tomato market in North-West Europe developed in
phase two and three of this project shows that mistrust and personal gain causes major losses
and large price luctuations in the supply chain. The chain hardly allows for any innovation
to survive the initial process. And the margins of most vegetable commodities are involved
in a race to the botom. It also shows that a digital trade platform in its simplest form already
will have a positive efect on price stability due to the elimination of some of the emotional
factors inluencing the present trade. A proper functioning distributed digital trading plat-
form that will be embraced by most actors in the supply chain will improve eiciency, reduce
redundancy and increase trust in the vegetable sector resulting in a more sustainable supply
chain of our food.

Further research will focus on translating the concept of SamenMarkt® to larger and more
complex global food markets. Further research will also show whether the concept of
SamenMarkt® is actually capable of playing a role of signiicance in the emerging global food
34 Agricultural Value Chain

crises. The authors of this chapter argue that in SamenMarkt® trusted relations between pro-
ducers and consumers will be restored, and negotiation of prices and distribution of products
will be more eiciently organized enabled by distributed information and communication
technology (ICT) technology to deal with large, complex real-time data with accessible and
efective interfaces.

Acknowledgements

The authors wish to thank members of the SamenMarkt® advisory board for generously shar-
ing knowledge and insight: Peter Duijvesteijn, Martin van der Sande, Dick van der Kaaij,
Hans Verwegen and Ruerd Ruben. The authors want to thank students Luc van Koppen and
Bob Dijkhuizen for engaging full enthusiasm with the research.

Author details

Olaf van Kooten2,3*, Caroline Nevejan1, Frances Brazier1, Michel Oey1 and Coen Hubers1,2

*Address all correspondence to: olaf.vankooten@wur.nl

1 Technical University Delft, Delft, The Netherlands
2 Inholland University of Applied Sciences, Delft, The Netherlands
3 Wageningen University and Research, Wageningen, The Netherlands

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 Chapter 3

Citrus Value Chain(s): A Survey of Pakistan Citrus

Industry
Muhammad Imran Siddique and Elena Garnevska
Muhammad Imran Siddique and Elena Garnevska
Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.70161

Abstract

Pakistan is producing more than types of diferent fruits of which citrus fruit is leading
among all fruit and constitutes about % of total fruit production in the country. Above
% of citrus fruits are produced in Punjab province and distributed through diferent value
chains in domestic as well as in international markets. A large part of citrus fruit produced
in Pakistan is mostly consumed locally without much value addition however, – % of
total production is exported after value addition. The value chains are very diverse, and a
number of diferent players actively participate in these chains, which ultimately decide the
destination of citrus fruit in these supply chain s . Knowing all these facts, the main aim of
this research is to identify diferent value chains of citrus fruit Kinnow in Pakistan and also
to identify and discuss the role and function of diferent value chain players in the citrus
industry in Pakistan. A survey involving of diferent players of Pakistan s citrus industry
was conducted in – to beter understand the citrus value chain s . Using a conve-
nience sampling technique, a total of respondents were interviewed during a period
of – months from three leading citrus-producing districts. It was found that citrus value
chains can be classiied into two major types unprocessed citrus value chain and processed
citrus value chains. It was also found that in the past, a large number of citrus growers
were involved in preharvest contracting for their orchards and only a small number of citrus
growers sold their orchards directly into local and foreign markets. The proportion has been
gradually changed now and growers are becoming progressive and more market oriented.

Keywords: citrus fruit, value chains, key players, citrus growers, pre-harvest contractors,
Pakistan

1. Pakistan citrus industry

The agriculture sector plays a pivotal role in Pakistan s economy and it holds the key to pros-
perity. A number of agricultural resources, fertile land, well-irrigated plains and variety of

© 6 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons
© 2018 The
Attribution Author(s).
License Licensee IntechOpen. This chapter is distributed
(http://creativecommons.org/licenses/by/ under the
. ), which permits terms of the
unrestricted Creative
use, distribution,
Commons
and Attribution
reproduction in any License
medium, (http://creativecommons.org/licenses/by/3.0),
provided the original work is properly cited. which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited.
38 Agricultural Value Chain

seasons are favourable for the Pakistan agricultural industry. Despite the decline in the share
of agriculture in gross domestic production GDP , nearly two-thirds of the population still
depend on this sector for their livelihood [ ]. Agriculture is considered as one of the major
drivers of economic growth in the country. It has been estimated that in – , the total
production of agriculture crops was million tonnes. Pakistan produces about . million
tonnes of fruit and vegetables annually. In – , the total fruit production was recorded
at . million tonnes, which composed of . % of the total fruit and vegetables production
in the country [ , 3].

1.1. Citrus production

The overall trend for all fruit production in Pakistan is increasing except for the year –
, when a great decrease of production of all fruits as well as citrus fruits was observed
due to unfavourable weather hailstorm and water shortage, as shown in Figure 1. The area
under all fruits and production both has been increasing gradually. Citrus fruit is prominent
in terms of its production followed by mango, dates and guava. The total citrus production
was . million tonnes in – that constitutes . % of total fruit production [3]. Citrus
fruit includes mandarins Kinnow , oranges, grapefruit, lemons and limes, of which manda-
rin Kinnow is of signiicant importance to Pakistan.

Pakistan s total production of citrus fruit primarily Kinnow is approximately . million

metric tonnes annually. Although there is no remarkable increase in area under citrus
production, the production has increased up to . % since – . In – , Pakistan
produced . million tonnes citrus, which increased to . million tonnes in – and
. million tonnes in – [3].

8000
7000
6000 Area
'000'
5000
hectares
4000
3000 Productio
n '000'
2000 tonnes
1000
0

Year

Figure 1. Area and production of all fruit in Pakistan. Source [3, , ].

 Citrus Value Chain(s): A Survey of Pakistan Citrus Industry 39
http://dx.doi.org/10.5772/intechopen.70161

The production of citrus fruit has been increasing since – however, it started to
decline in . The citrus fruit crop requires a critical low temperature for its ripening
which if not achieved may lead to decline in the production of fruit [ ]. Therefore, one
of the reasons of varied citrus fruit production might be due to the temperature varia-
tions in the citrus growing areas of Pakistan. Such a great variation in temperature was
recorded in – in citrus-producing areas due to which citrus production dropped
from . to . million tonnes however, the area under citrus fruit orchards remained the
same [3].
In Pakistan, citrus fruit has been predominantly cultivated in four provinces, namely Punjab,
Khyber Pakhtunkhwa KPK , Sindh and Baluchistan. Among all four provinces, Punjab is
considered to be the hub of citrus production. Table 1 represents the major citrus growing
districts in all the four provinces of the country.
Punjab province, according to Pakistan Horticulture Development and Export Company
PHDEC , produces more than % of total Kinnow production whereas KPK
mainly produces oranges among all citrus fruits in the country. Sargodha, Toba Tek Singh
and Mandi Bahauddin are three known districts for their citrus production in Punjab
province. Diferent varieties of citrus fruits are also grown in small proportions in other
districts.
Mandarins Feutrell s Early and Kinnow and sweet orange Mausami or Musambi and
Red Blood are very important among all the citrus varieties cultivated in Pakistan.
Table 2 shows different varieties of citrus produced in the country. Punjab province,
being the hub of citrus production Kinnow , produced . % of citrus fruit Kinnow in
– [3].
In Punjab province, three districts, Sargodha, Toba Tek Singh and Mandi Bahauddin, consti-
tute around % of the total area under citrus cultivation and produce nearly % of citrus
fruit [ ]. In Sargodha district, Bhalwal produces , metric tonnes of Kinnow annually

Province Major districts

Punjab Sargodha, Toba Tek Singh, Mandi Bahauddin, Sahiwal,
Khanewal, Vehari, Bahawalpur, Multan, Okara, Layyah,
Jhang, Kasur, Bahawalnagar, Faisalabad

Khyber Pakhtunkhwa KPK Malakand, Swat, Nowshera, Lower Dir, Dera Ismail
Khan, Mardan, Haripur

Sindh Naushero Feroze, Khairpur, Nawabshah, Sukkur,

Sanghar

Baluchistan Nasirabad, Dolan, Lasbela, Gwadar, Sibi,

Source [7, ]

Table 1. Major citrus growing areas in Pakistan.

40 Agricultural Value Chain

Sweet Orange Succri, Musambi, Washington Navel, Jafa, Red Blood,

Ruby Red and Valencia Late.

Mandarins Feutrell s Early and Kinnow

Grapefruit Mash Seedless, Duncan, Foster and Shamber

Lemon Eureka, Lisbon Lemon and rough Lemon

Lime Kagzi lime and Sweet lime

Source [ ]

Table 2. Varieties of citrus fruit in Pakistan.

and is considered as the centre of Kinnow mandarin production Pakistan Horticulture

Development & Export Company PHDEC , . Figure 2 demonstrates citrus fruit produc-
tion in four provinces of Pakistan.

In – , the total citrus production in Khyber Pakhtunkhwa KPK was . %, in Sindh

. % and in Baluchistan it was . %. In the late s, the production of citrus fruit in the
Baluchistan province increased and it was due to the increase in the area under citrus cultiva-
tion and hence production under citrus fruit was increased in Baluchistan in the late s
[3, , 9].

In Punjab province, Kinnow production was . million tonnes followed by oranges, which
was about thousand tonnes in – among diferent varieties of citrus fruits. In

Figure 2. Province-wise production of citrus fruit in Pakistan. Source [3, ].

 Citrus Value Chain(s): A Survey of Pakistan Citrus Industry 41
http://dx.doi.org/10.5772/intechopen.70161

Production and area of diferent types of citrus fruit in Punjab

Type of Citrus 2011–2012 Percent of total citrus
production
Area Production
(‘000’ Hectares) (‘000’ tonnes)
Kinnow . . .

Oranges . . .

Musambi . . .

Mandarin . . .

Sweet Lime . . .

Sour Orange . . .

Lemon . . .

Sour Lime . . .

Grapefruit . . .

Other . . .

Total . . .

Source [ ]

Table 3. Production of diferent types of citrus fruit in Punjab.

Punjab, Kinnow was . % of the total citrus production and . % of the total area under
citrus cultivation. Oranges come next to Kinnow in production and area under cultivation and
constitutes . % of the total citrus production and % of the total area under citrus cultivation
in Punjab. Grapefruit production is the lowest and it was only thousand tonnes. Diferent
types of citrus grown in Punjab province in – are shown in Table 3.

1.2. Citrus consumption

The consumption of fresh citrus fruit in developing countries has been increasing however,
it is still low compared to the developed countries. In Pakistan, per capita consumption of
citrus fruit is almost static since except in when it dropped to . from . kg,
as shown in Figure 3. The rapid increase in the population may be one of the major factors
keeping the consumption level nearly constant despite the increase in citrus production from
. million tonnes in to . million tonnes in . Per capita income has increased from
US$ in to US$ in [ ]. However, the sharp decline in per capita consumption
in was a result of lowest production of . million tonnes from . million tonnes in ,
which resulted in lower domestic supply and availability of citrus fruit in the country. The
high peak of in Figure 3 relects the highest per capita consumption of citrus fruit due
to decreased exports of the citrus fruit from . thousand tonnes in to . thousand
tonnes in .
42 Agricultural Value Chain

70.0
Brazil
60.0
Consumption (kg/capita/year)

Mexico
50.0

40.0 USA

30.0 Spain

20.0 Pakistan

10.0 China

0.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year

Figure 3. World citrus fruit consumption trend. Source [ ].

Figure 3 shows the annual per capita consumption kg of fresh citrus fruit in important coun-
tries. There was an increase in per capita consumption in Brazil that reached to the highest
level in and then dropped very sharply in and .

1.3. Citrus exports

With the changing consumer preferences towards consumption of fresh and convenience
food, the global demand for fresh fruit is increasing [ , ]. Pakistan is one of the largest citrus
producing countries and ranked th in the production of citrus fruit [ ]. It has been observed
that fresh citrus exports from Pakistan have been increasing since – as shown in
Figure 4.

Among all citrus fruits, Kinnow mandarin constitutes about % in the total exports of citrus
fruit from the country [ , ]. In – , the total exports of citrus fruit from Pakistan
were thousand tonnes, which account for a total value of $ million that represents
about . % of the total citrus production. As compared to – , the total exports of
citrus were exactly threefold in – which accounted for $ . million of foreign rev-
enue. Despite the increase in production, only a small amount of citrus fruit – % is being
exported.

The majority of the farmers in Pakistan own and cultivate a small size of agricultural land
of less than hectare. However, in Punjab, average citrus farm size was . hectare, which
is considered relatively large compared to other crops [ ]. The size of citrus orchard ranges
from less than hectare to as big as hectare in diferent regions of the country. A few large
citrus growers do exist however, small and medium size growers are the majority [ ].
 Citrus Value Chain(s): A Survey of Pakistan Citrus Industry 43
http://dx.doi.org/10.5772/intechopen.70161

Figure 4. Pakistan citrus area, production and exports. Source [ , ].

The agricultural value chains in Pakistan are very diverse and start with citrus growers/
producers. Like other fruits, citrus fruit value chain is primarily controlled by the private
sector. However, Government plays a facilitative role by providing basic infrastructure and
regulatory measures for easy business transactions. It is generally observed that marketing
intermediaries exploit agricultural crop producers by charging high margin on their invest-
ment [ ]. Citrus fruit value chain s starts with the involvement of pre-harvest contractor
directly with citrus growers. According to Chaudry [ ], the typical citrus value chains in
Pakistan are shown in Figure 5. The role of each player in the citrus value chain is presented
later in the results and discussion sections.
All the players involved in these value chains execute their usual functions as they do in
other food value chains however, the pre-harvest contractors are the most important power-
ful player in Pakistan citrus value chains [ , ].
Keeping in mind the increase in production, constant domestic consumption and avail-
able surplus of citrus fruit for export, a number of questions arises how many diferent
citrus value chains operate in the country? Who are the players involved in the citrus value
chains? Despite the availability of citrus fruit, why only a small amount of citrus fruit is
being exported? To answer these questions, this study aims to identify and analyse diferent
value chains of citrus fruit Kinnow that are operating in Pakistan and also to identify and
discuss the role and functions of each value chain players in the citrus industry in Pakistan.
Furthermore, this study identiies future opportunities and challenges of citrus sector in
Pakistan.
44 Agricultural Value Chain

Figure 5. Value chains of citrus in Pakistan. Source [ ].

2. Method

Both qualitative exploratory and quantitative descriptive and inferential research methods
were used for this study depending upon the research questions. A survey involving difer-
ent players of Pakistan s citrus industry was conducted in – using semi-structured
interviews assisted by a questionnaire. Primary data were collected through surveys, while
secondary data were obtained from published documents, reports, journals and government
publications of various public and private institutions and departments.
Using a convenience sampling technique, a total of respondents were interviewed during
a period of – months from three leading citrus producing districts, namely Sargodha, Toba
Tek Singh and Mandi Bahauddin. The respondents included were citrus growers, pre-
harvest contractors and processing factories/exporters from these three districts. Due to
unavailability of population size sampling frame , time and budget constraint, a convenient
sampling technique was used for the selection of the respondents. The underlying reason of
interviewing diferent players in the citrus value chains was to study closely their functions
and participation in diferent existing value chains. It also helped identifying and understand-
ing diferent value chains operating in the country. This study also identiied future opportu-
nities and challenges of citrus sector in Pakistan.
 Citrus Value Chain(s): A Survey of Pakistan Citrus Industry 45
http://dx.doi.org/10.5772/intechopen.70161

A statistical package Predictive Analytics Software–version PASW- , previously known

as Statistical Product and Service Solutions SPSS , was used to analyse the collected data.
Fisher s exact test was used to test the signiicance of diferent demographical variables and
the selection of the value chain particularly involving pre-harvest contractor.

3. Results and discussion

3.1. Citrus (Kinnow) value chain systems

The results of this study revealed that citrus Kinnow value chains can be classiied into two
major types unprocessed citrus Kinnow value chain and processed citrus Kinnow value
chain. The description of these value chains is presented in the next section.

3.1.1. Unprocessed citrus (Kinnow) value chain

Unprocessed citrus Kinnow graded and packed before selling to the local market and does
not include usually washing and waxing. Figure 6 presents the unprocessed citrus Kinnow
value chain in the country.
About – % Kinnow is marketed in the country for domestic consumption while nearly
% Kinnow is accounted for post-harvest losses [ ]. Citrus growers, pre-harvest contractors,
local provincial commission agents, inter-provincial commission agents, local wholesalers,
inter-provincial wholesalers, local and inter-provincial retailers are diferent actors of unpro-
cessed citrus Kinnow value chain in Pakistan.
The major players of the unprocessed citrus Kinnow value chain are citrus growers and pre-
harvest contractors and their marketing strategies intensely afect the citrus supply chain in
the country. It was common practice in the past where about % of the citrus growers used to
sell their orchard to pre-harvest contractors. The predominate reasons include unavailability
of inances, lack of market information, ease of the transaction, avoiding the future price luc-
tuations and norms of the business [ ]. Citrus growers are becoming more market oriented
and adapting diferent marketing channels to get high price for their products instead of sell-
ing solely to pre-harvest contractors. The improved education level, government support and
technological developments are the reasons for this change. One of the citrus growers replied
when asked about direct marketing of his fruit in the market
Now nearly every citrus grower has an access to prices of diferent local and provincial markets which
has helped us to involve ourselves into direct marketing of our fruit. Being ignorant of diferent market
prices in the past, we were unable to decide where to sell, hence carried out with the pre-harvest con-
tractor. Thanks for the government support, who provided us this opportunity to market our produce
directly and earn good proit .

3.1.2. Processed citrus (Kinnow) value chain

Kinnow processing is of two types for export and involves washing, waxing, grading and
packing and for juice extraction.
46 Agricultural Value Chain

Figure 6. Unprocessed citrus Kinnow value chain for local market.

3.1.2.1. Processed citrus (Kinnow) value chain for export

Only – % Kinnow is processed for export to diferent countries. In – , the major

exports of Kinnow mandarin were to Afghanistan , tonnes , Russian Federation
, tonnes and United Arab Emirates , tonnes . A complete list of countries is
atached in Appendix A [ ]. Processed citrus Kinnow value chain comprises citrus growers,
pre-harvest contractors, local commission agents/wholesalers, Kinnow processing factories
and exporters Figure 7 . The processed citrus value chain and unprocessed citrus value chain
are nearly similar except Kinnow processing factory, and exporters are involved in processed
value chain at the end stage of the process.
Citrus growers, pre-harvest contractors and commission agents sell citrus fruit directly to
factories Kinnow processing and exporters. Pre-harvest contractors and some commission
agents act on behalf of these Kinnow processors and exporters and purchase citrus fruit for
them. These agents are provided with some credit or advance payments to buy citrus fruit.
A good family and inancial background, market reputation and ability of constant supply
 Citrus Value Chain(s): A Survey of Pakistan Citrus Industry 47
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Figure 7. Processed citrus Kinnow value chain for export.

of fruit in the season are the qualities of sellers preferred by these Kinnow processors and
exporters. Sellers to processors and exporters are paid through cheques. One of the exporters
commented on the selection of seller grower/contractor/commission agent/wholesaler

In our export business, we need to make promises with our importers for certain quantity of fruit in the
season; therefore, all exporters try to deal with the seller who can commit constant supply of citrus. A
well reputed, inancially strong with good moral character seller is our irst choice to deal with .

In Sargodha, about Kinnow processing factories are functioning but only – process-
ing factories are exporting citrus to diferent countries. The reasons of such a low export from
the country include high demand for seedless Kinnow hybrid mandarin in the developed
countries not produced in Pakistan , marketing practices and failure to meet the quality cer-
tiication standards. One of the respondents who wanted to export to European countries
commented

I always take good care of my orchards; hence, I manage to get good quality fruit in each season. Realis-
ing the quality, I decided to export my fruit to Europe last year but I was told that I should grow citrus
to meet quality certiication standards required for export which I am following now. Hopefully, I would
be able to export my citrus to Europe soon .

A few processing units are also being constructed in other districts as well, for example, dis-
trict Mandi Bahauddin, district Toba Tek Singh and district Multan.

3.1.2.2. Processed citrus (Kinnow) value chain for juice extraction

A total of fruit processing and juice extraction factories are operating in Pakistan [ ]. Only
ive of them are processing citrus fruit for juice extraction. About % to the total citrus pro-
duced in the country is processed for juice extraction [ ]. These factories are concentrated in
the major citrus producing areas such as Sargodha, Bhalwal and Mateela cities. Citrus grow-
ers and pre-harvest contractors sell mostly drop of, low quality and non-marketable fruit to
48 Agricultural Value Chain

these juice factories, which process it into juice concentrate and sell it to diferent retail shops
and supermarkets in the country.

One of the contractors who supply to exporters and processors replied

I always try to sell exporters and processors because they pay premium price for my fruit. However,
these exporters and processors only purchase selective fruit from me and leave small size, non-uniform
and unripe fruit. I don t mind it; I sell this non-selective fruit to juice factories and recover my cost.
Job done .

Figure 8 shows diferent functionaries of processed citrus Kinnow value chain.

. . Description of diferent value chain players

Diferent players of citrus Kinnow value chain including citrus growers, pre-harvest con-
tractors, commission agents, wholesalers and retailers are described and discussed below.

3.2.1. Citrus growers

The results of this study revealed that majority of the citrus growers . % were – years
of age and only . % were quite young under years old in the citrus industry. However,
about % citrus growers were above years of age. The literacy rate was more than %
in the citrus growers having at least years of schooling and only . % respondents were
illiterate. It was reported that the literacy rate was increasing in the citrus growing areas in
Pakistan, thus providing basis for the growth of citrus growers and making them more market

Figure 8. Processed citrus Kinnow value chain for juice extraction.

 Citrus Value Chain(s): A Survey of Pakistan Citrus Industry 49
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oriented [ ]. The results also showed that nearly % of the citrus growers were very experi-
enced and were involved in the citrus industry for many years. The size of the citrus orchards
was small, and majority of the citrus growers possessed less than acres Table 4 .
The size of these citrus orchards was further reduced when the orchard was divided among
the next generations. Previously, it was found that majority of the citrus growers more than
% preferred to market their produce through pre-harvest contractors, thus reducing the
direct involvement of the citrus growers in the value chains. Due to beter government poli-
cies in the education sector and increasing market awareness, the level of literacy rate has
increased in the last years. All citrus growers were educated and became aware of market
information and opportunities. As citrus growers are becoming more market oriented, they
are searching for reliable market information to ind alternative value chains other than sell-
ing directly to pre-harvest contractors. According to this study, about % of the citrus grow-
ers are selling their orchard to pre-harvest contractors. This inding is contrary to the previous
study conducted by Chaudry [ ] and Ali [ ] who reported that % of citrus growers sold
their orchards to pre-harvest contractors about years ago.
Nearly % of the citrus growers in the sample sold their orchard to commission agents/
wholesalers or exporters. Price was setled on commission basis at a rate of – % of the total
sale price of the produce with the commission agent or wholesaler. Exporters and processing
factories usually announce citrus fruit purchase price per kg for the season. It is negotiable
in certain cases, for example, if citrus grower s contract for complete season fruit supply.
There is no government control over prices of Kinnow and it is determined by market forces
demand and supply . The only problem while selling to exporter was that it only purchased
good quality fruit with good size and colour selective fruit purchase . This was one of the
reasons, citrus growers switch to alternative buyers who purchase and pay the price for the
whole produce. Nearly % citrus growers sold their produce to diferent buyers instead of
selling to only one buyer.

Age (years) 1.0–30 31–60 61–90

Percent % . . .

Education Illiterate Undergraduate Graduate Postgraduate

Percent % . . . .

Experience (years) ≤ 11–25 >26

Percent % . . .

Area under citrus 1.0–20 20.1–60 60.1–160

(acres)

Percent % . . .

Sell orchard to Pre-harvest Commission agent/ Processing factory/ Diferent buyers

contractor wholesaler exporter

Percent % % % % %

Table 4. Descriptive statistics for citrus growers.

50 Agricultural Value Chain

Size of contractors Less than $0.1 million $0.1–$0.5 million More than $0.5 million
Percent % % % %

Experience Less than 10 years 10–20 years More than 20 years

Percent % % % %

Sell fruit to Commission agent/ Exporter Diferent buyers

wholesaler

Percent % % % %

Education status Illiterate Educated to minimum level

Percent % % %

Table 5. Citrus pre-harvest contractors general information.

3.2.2. Citrus pre-harvest contractors

A total of pre-harvest contractors were interviewed for the study. About % pre-harvest
contractors had US$ . –$ . million business volume and were considered medium-sized
contractors. Pre-harvest contractors either used their own money to buy the orchards or acted
as an agent on the behalf of the other actors of the citrus supply chain, for example, commis-
sion agents, wholesalers, processors or exporters. The results revealed that majority of the
pre-harvest contractors % of the respondents had more than years of experience, as
shown in Table 5. However, small pre-harvest contractors had less than years of experience
due to the fact that they work seasonally in the market and were not a regular player of citrus
supply chain in the country.

Majority of the citrus growers were well educated and experienced businessmen, whereas,
only % pre-harvest contractors were illiterate not even years at school but they work
with either well-educated business partners or family members brother, son .

About % of the pre-harvest contractors sold their fruit to commission agents or wholesalers,
as shown in Table 5. Price is paid on commission basis at a rate of – % of the total sale price
of the produce. Usually, there was -year contract writen or verbal between pre-harvest
contractors and commission agents or wholesalers to supply a certain quantity of fruit under
the contract on a ix price. Nearly % of the pre-harvest contractors sold their fruit directly
to exporters. Usually, price was announced by processors and exporter association however,
in some cases it was negotiable.

Citrus growers sold their orchards in advance to contractors for diferent reasons. Firstly, cit-
rus growers in Pakistan were not inancially sound enough to market their produce. Secondly,
responsibility of looking after the orchard is shared between farmers and pre-harvest contrac-
tors, and lessen farmer s inancial burden for fertiliser and pesticides which is now provided
by the pre-harvest contractors. On the other hand, pre-harvest contractor took control over
 Citrus Value Chain(s): A Survey of Pakistan Citrus Industry 51
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the produce and bargaining power for selling the fruit in the market. One of the citrus grow-
ers commented on pre-harvest sale of his orchard
It is always a problem for me to buy inputs once my orchard starts lowering. Pre-harvest contractor,
on one hand, purchase my orchard well in time and on the other hand, help in providing me the required
inputs which otherwise I cannot aford .

3.2.2.1. Types of contractors

There are diferent types of citrus orchard contractors operating in the country. They can be
divided into three broad categories on the basis of their purchasing power of citrus fruit for
trading purposes.

i) Small-sized contractors
Small-sized contractors with buying power less than US$ . million US dollar =
PKR are called Den Daar and usually work domestically in the local markets only. Being
a small-scale operator and limited inances, they work in groups and buy an orchard
on shared basis. They sell fruit on daily basis in the local market where they are called
Phariwala in the local language or sometimes they sell directly to a wholesaler or com-
mission agent.

ii) Medium-sized contractors

Medium-sized contractors buy fruit that value between US$ . to US$ . million. They
work for commission agents/wholesalers/exporters and usually do not invest their own
money. Sometimes they buy the orchard with their own money but usually they contract
with the citrus grower at the pre-harvest stage by estimating the future production from
the orchard and also make a future contract with the commission agents/wholesalers/
exporters. This way they play an intermediary role between two parties without invest-
ing their own inances. Commission agents/wholesalers/exporters are then responsible to
pay all the money to the contractor in the form of partial payments. Initially, commission
agents/wholesalers/exporters pay one-fourth of the total orchard value under the contract
to the contractor who pays to the citrus grower as an advance. Usually, this whole agree-
ment is not documented therefore, there are chances of fraudulent through this whole
transaction. One of the possibilities is that citrus grower might refuse to sell at the harvest
stage due to high price ofered by other contractors or buyers.
iii) Large-sized contractors
The large-sized contractors are few in number and usually buy orchards from medium-
and large-sized citrus growers. They typically have strong inances with purchasing
power greater than US$ . M. Sometimes, they work for commission agents/wholesalers/
exporters and buy orchards/fruit for them. They usually sell fruit to exporters and in dif-
ferent local or inter-provincial markets depending upon the price. However, if the prices
are low, they can store fruit in the cold storages privately owned for some time and sell
in the market when price increases.
52 Agricultural Value Chain

. . . Descriptions of the other players involved in Pakistan citrus value chains

i) Commission agents

The commission agent Arhti in local language purchases citrus fruit from producers
and/or pre-harvest contractors and sells it to wholesalers /retailers/exporters. Occasionally,
the commission agents work as a wholesaler and sell directly to retailers or exporters. In
some cases, citrus growers and contractors may use commission agents as a selling agent
to sell in the local and far distant markets. Commission agents usually do not take the title
or possession of the commodity citrus fruit and act as a link between buyer and seller
and facilitate the whole transaction and receive a ixed amount as a commission for their
services.
Nearly all the commission agents provide credit to citrus growers and contractors with
the condition that they would sell their fruit to them. Usually, contractors do not receive
any payments until the end of contracting period. At the end of contracting season, con-
tractor is paid based on the agreement between the parties.

ii) Wholesalers
Wholesalers buy fruit in large quantities from commission agents and pre-harvest con-
tractors or directly from the citrus growers. Contrary to commission agents, wholesalers
take the possession of the commodity and perform diferent value-added functions like
grading, sorting, washing, cleaning before selling to the local market, inter-provincial
wholesalers, retailers and consumers. Usually, wholesalers extend credit to pre-harvest
contractors who purchase fruit for them from the citrus growers. In that case, the pre-
harvest contractors work as a commission agent for that particular wholesaler.
iii) Retailers

In Pakistan, citrus fruit is a table fruit and consumed fresh. It is primarily sold by fruit
shops, stallholders and street hawkers using animal driven carts . The fruit shops are
situated mostly in consumer markets, near residential areas, along roadsides. It is very
convenient to buy fruit from these shops at reasonable prices however, a large quan-
tity of citrus fruit is also sold by street hawkers on bicycles or animal-driven carts all
around in the cities and country side. Though they sell only a small amount of fruit, yet
they are necessary part of the whole citrus value chain in delivering the product to end
consumers. These retailers also known as Phariwala buy fruit directly from small-sized
pre-harvest contractors.

4. Opportunities and challenges for Pakistan citrus industry

Citrus growers are becoming more market oriented therefore, by increasing the market-
led opportunities like crop management, improving quality of the fruit, adding more value
through processing will develop and expand Pakistan citrus industry. With newly developed
 Citrus Value Chain(s): A Survey of Pakistan Citrus Industry 53
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infrastructure and transportation systems, domestic as well as international supply chain of

citrus industry will be beter established towards becoming more eicient and reducing the
overall waste.
The exports of citrus fruit from the country are only – % of the total production therefore,
there lies a great opportunity and potential in the export of citrus fruit. By developing the
quality management practices, improving supply chains, establishing certiication scheme
and reducing post-harvest losses, the exports can be increased particularly in the European
countries, Middle East, South East Asia, China and Central Asia markets.

The challenges that Pakistan citrus industry is facing include, but not limited to, agro-ecological
climate with extreme summer temperatures, frost in winter and water scarcity/shortage.
Ineicient production, irrigation methods, post-harvest losses, low grade fruit, poor disease
control, lack of fertilizers/manures in the soil and ineicient supply chains are the other major
challenges in citrus value chains. To overcome these challenges, citrus grower association
private entity owned by growers is working closely with government departments and
institutions to provide required inputs and expertise to growers that can raise the quantity
and quality of fruit.
The lack of skilled and trained labour for fruit picking poses another marketing constraint,
which in turn afects the quality of picked fruit. Even the lack of seasonal or temporary labour
for fruit picking is also a challenge. The eforts are being made by extension workers, medium
and large citrus growers to provide necessary training and accommodation facilities to the
labour. This will not only decrease the fruit damage during picking but also ensure the avail-
ability of the labour when required.
Good agricultural practices GAPs and sanitary phytosanitary SPS measures are required
for markets such as Europe, the USA and Oceania. However, eforts are being made, both
publically and privately, to uplift the quality of citrus fruit in order to get required certiica-
tion for export.

5. Conclusion

The agro-food value chain system in Pakistan is very diverse and nearly all citrus value chains
are dominated by citrus growers, pre-harvest contractors and exporters of citrus fruit with the
involvement of other value chain members like commission agents, wholesalers, and retail-
ers. It was found that citrus value chains can be classiied into two major types unprocessed
citrus value chain for local markets and processed citrus value chains for export and juice
extraction. In Pakistan, the majority of citrus orchards are less than a hectare however, the
average size of citrus orchard is almost hectare. In the past, mostly citrus growers sold
their fruit or orchard to pre-harvest contractors and only a small number of the growers were
involved in direct marketing of their produce in the markets. In recent times, due to the avail-
ability of market information, citrus growers are becoming more market oriented and shifting
away from the customary practice of selling the orchard production before harvesting and
54 Agricultural Value Chain

are directly marketing their produce in national as well as in international markets. There are
few challenges and opportunities that can be addressed prudently to make Pakistan citrus
industry more lourishing and prosperous. The biggest opportunity lies in the export horizon,
which if tapped can be a good source of export revenue.

Appendix A: Export of citrus (KINO) fruit, country wise

Commodity/Country 2013–2014

Quantity Value
‘000’ tonnes Thousand rupees
Kino, fresh 353.72 15,665,315

Afghanistan . , ,

Angola .

Armenia . ––

Azerbaijan .

Bahrain . ,

Bangladesh . ,

Cambodia or Kampuchea . ,

Canada . ,

Georgia . ,

Hong Kong S.A. Re. Chi .

Indonesia . ,

Iran Islamic Republic. . –

Iraq . –

Italy . –

Kazakhstan .

Kuwait . ,

Lithuania . ,

Malaysia . ,

Maldives . –

Mauritius . ,

Netherlands .

Norway .

Oman . ,

Philippines . ,
 Citrus Value Chain(s): A Survey of Pakistan Citrus Industry 55
http://dx.doi.org/10.5772/intechopen.70161

Commodity/Country 2013–2014

Quantity Value
‘000’ tonnes Thousand rupees
Poland . ––

Qatar . ,

Reunion .

Romania .

Russian Federation . ,

Saudi Arabia . ,

Seychelles .

Singapore . ,

Sri Lanka . ,

Sweden .

Tajikistan .

Ukraine . , ,

United Arab Emirates . , ,

United Kingdom . ,

Uzbekistan .

Viet Nam . ,

Source [ ]

Author details

Muhammad Imran Siddique* and Elena Garnevska

*Address all correspondence to m.i.siddique@massey.ac.nz
Massey University, Palmerston North, New Zealand

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 Chapter 4

The Value Aspect of Reallocating Seafood Freight from

Road to Sea Transport
Per Engelseth, Irina V. Karlsen, Shulin Huang
and Arild Hof Irina V. Karlsen, Shulin Huang and
Per Engelseth,
Arild Hoff
Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.68779

Abstract
A case study elaborates on the project organization promoting change of transport mode
in a food chain from a value perspective. This project organization may perspectively be
viewed as a supply chain with value conceptions diferent from the everyday seafood
supply chain it is meant to develop. Value is in this project context revealed as an inter-
subjective complex phenomenon, founded in that value conceptions by actors located
at diferent locations in the supply chain. This renders customer value as one of many
dynamic value components in this project organization. Value embedded in a supply
chain is therefore always a source of uncertainty, a subjective perspective; it cannot be
considered as a clear functional purpose in projects aimed at developing food supply.
The route to reallocate seafood freight should therefore focus on organizing interconnec-
tivity to support networking and the project members accepting that the project outcome
is emergent.

Keywords: food logistics, sustainability, short sea shipping, intermodal transport,

customer value, supply chain management

1. Introduction

Established 45 years ago, the Norwegian aquaculture industry has progressively grown, which
has now become one of the most important industries in Norway’s economy. Nowadays,
most of the fresh salmon products are transported on roads. This mode of transport involves
challenges such as risk associated with frequent accidents on these wintery Norwegian roads,
low quality of the transport service purchased on an open market managed by seafood prod-
uct customers and limited environmental sustainability. Short sea shipping SSS ofers an

© 6 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons
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Attribution Author(s).
License Licensee IntechOpen. This chapter is distributed
(http://creativecommons.org/licenses/by/ under the
. ), which permits terms of the
unrestricted Creative
use, distribution,
Commons
and Attribution
reproduction in any License
medium, (http://creativecommons.org/licenses/by/3.0),
provided the original work is properly cited. which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited.
60 Agricultural Value Chain

alternative transportation solution being characterized by a lower level of pollution than road
transport and providing suicient transport speed to market. This case focuses on the seafood
cluster including the island municipalities of Frøya and Hitra as well as the Rørvik munici-
pality on the coast of central Norway. Export volumes are expected to experience a ivefold
increase from these two industrial clusters. If these goods are continued to be transported by
land, this may in addition to that road transport is considered not environmentally sustain-
able also lead to increased deterioration of roads.

In autumn 2014, as a result of cooperation between Kristiansund and Nordmøre Harbour

company and North Trøndelag Harbour Rørvik IKS, the Coastal Harbour Alliance was estab-
lished. The mission of this alliance is to provide a satisfactory volume for fresh ish export to
reallocate the Hitra/Frøya and Rørvik municipality freight lows from road to sea, involving
two closely located ports of origin. A key technical facilitator of this transport solution is
eicient intermodal transport, using the same container carried on at least two diferent trans-
port modes. The main focus of the project is to ind a solution satisfying transport demands
of the end customers in the everyday seafood supply chain in terms of frequency, cost and
reliability.

Based on a case study by Engelseth et al. [1], this chapter discusses further the value aspect
of this proposed freight reallocation from road to sea transport. This development organiza-
tion is separate from the supply chain itself that it aims to change. The applied road transport
solution involves considering a range of factors associated with customer preferences as well
as a wider concept of societal intertwined with environmental value. Value is a perception.
In a supply network, diferent actors hold diferent perceptions of value associated with real-
locating seafood freight from road to sea transport. Initially, these factors are indicated and
discussed. Factors impacting on these value perceptions are varied and include CO2 emis-
sions, degree of experienced uncertainty, experienced accident rates, demands regarding time
to market, product quality objectives, logistical feasibility and costs and business relationship
strength. This consideration of value as a transient phenomenon in project development of
food chains is the starting point of our investigation. The chapter considers this by irst dis-
cussing freight reallocation as a networked project organization. This section establishes the
current status quo of the project in its networked context pointing to fundamental network-
related challenges of freight reallocation to the SSS mode. This is followed by development of
the concept of value in such an organizational seting. This is followed by an introduction of
SSS as transport mode. The inal section before conclusion describes the actual freight modes
applied in the case from a supply chain perspective, involving both logistical and inter-orga-
nizational integration concerns.

2. Freight reallocation: project, network and organizations

The proposed freight reallocation from road to sea transport is organized as a project. The pos-
sibilities of reallocation of seafood freight lows from road to sea here are great due to favour-
able allocation of key ports in the municipalities’ neighbourhood and eforts and interest from
 The Value Aspect of Reallocating Seafood Freight from Road to Sea Transport 61
http://dx.doi.org/10.5772/intechopen.68779

the government, aquaculture and logistic service providers’ side. While the current dominant
road transport mode favours the use of low-cost foreign trucking service providers, the estab-
lishment of a SSS with short distance trucking feeder routes favours the local Norwegian truck
companies since they are already established in this region.
The restructuring to SSS will take some time. However, the creation of the new modern
harbour facility at the industrial park on the small island of Jostenøya (see Figure 1) within
the island municipality of Hitra greatly increases the eiciency of transporting through this
mode, with direct loading from the seafood producers established at the industrial park with
its adjacent harbour and short road transport from producers located at a few kilometres’
distance from this new harbour facility.

Sea transportation will in the proposed start-up phase be as a supplement to road transporta-
tion. Currently, the participants of the project are actively seeking the opportunities for return
cargo lows. There are a lot of opportunities, for example, fruit and vegetable freight lows
from the EU countries to Mid-Norway and Western Norway that can be combined together.
Even though the new production facility implies an adjacent harbour location, the change to
SSS is not decided upon yet; it is subject to active discussion in the industrial network. One
major reason for this is that freight in most cases of seafood export in the region is commonly
determined by the customer. The commonly used ex works clause also implies that it is the
distant customers, not being really aware of production and logistics infrastructure concerns
in Norway that in practice determine how the freight is to be transported.

This means that a change of road to SSS transport involves convincing the seafood produc-
ers’ foreign customers. Most of these importers are located in the EU and currently have their
goods transported door-to-door by trucks. This is clearly, except for the frequent accidents
on wintery Norwegians roads (see Figure 2), a convenient transport solution. Furthermore,
the seafood producers and exporters are fundamentally indiferent to how their goods get
transported, by which trucking company, it is only when they take into consideration societal

Figure 1. The projected industrial park and harbour facility at Hitra.

62 Agricultural Value Chain

Figure 2. Seafood on Norwegian roads is prone to frequent accidents.

values promoted to their own export market customers such as retailers that they may tend
to prefer sea transport solutions. This, however, may also demand traceability to verify the
use of transport modes. Such choices may accordingly beneit the reputation of the irms from
corporate social responsibility standpoint.

To reallocate this freight from road to sea involves accordingly a marketing efort on behalf
of Kristiansund and Nordmøre Harbour company that owns the in-development industrial
park and harbour facility and the Hitra municipality supporting the establishment of this
production and port service infrastructure. Thus, this challenge also encompasses the proj-
ect organization of the Coastal Alliance to reallocate seafood freight from Hitra and Frøya
municipalities from road to sea transport. These are the main stakeholders holding a value
perception regarding the active use of the new harbour facility at Hitra. It is accordingly a
project-related challenge to convince the foreign importers of seafood from the Hitra and
Frøya facilities to import their goods using SSS. For this reason, the customer value perspec-
tive of this freight reallocation is vital. However, since many networked supply chain actors
involved in the potentiality of developing transport from Hitra to the markets have varying
conceptions of value, we must also scrutinize this concept of “value”. We then turn to con-
sider what we mean by “customer value” in this organizational as well as societal context.
This is followed by discussing the environmental concerns related to reallocating freight to
SSS through this project.

3. On “customer value” and value in general

The notion of “value” is essential in all forms of business. Simply speaking value may be consid-
ered as “something that people regard highly, cherish or protect” [2]. This implies a semiotics
understanding of value, associated with texts and conversation. In the business community, the
economic aspect of value is highlighted. From a supply chain management perspective, perti-
nent to our inquiry, what is highly regarded, cherished or protected is associated with percep-
tion of supply beneits weighed rationally speaking against the costs of perceived ownership. It
is a balancing game of perceived positive and negative outcomes of an acquisition. Christopher
[3] terms this balancing in the organizational context of a supply chain as “customer value”.
 The Value Aspect of Reallocating Seafood Freight from Road to Sea Transport 63
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Being a statement of subjectivity, the concept of “customer value” is inherently complex. The
human mind and its preferences are no objective phenomenon; preferences are contingent and
change. Value is considered in this study as always intersubjective. This is vital, because shared
understanding of what constitutes customer value in the conglomerate organization of a supply
chain also represents a binding force. Value is an integrator, a boundary object that helps to inte-
grate in the supply chain. It plays the role of potential, to secure recurrent purchases through
continuous customer satisfaction achievement.
Customer value is in business practice clearly a complex phenomenon. Supply chains are here
considered as linkages characterized by systemic integration, an organizational structure.
Being complex means that value from the perspective of the customer is seen as a process; it
is emergent. Since value is always in lux, for the supplier, it is also a moving business target.
Clearly, what is writen here represents a particular process approach to appreciating value
in supply chains and thereby managing them. Given that customer value is the key objec-
tive in a supply chain and that we have already indicated that customer value is customer
perception of beneits balanced against costs of acquisition and use, this in itself is regarded
a process. Because, the customer evaluating follows a timeline, it is a learning process that
emerges through interaction in the business relationship between the customer and the sup-
plier. Furthermore, in line with Richardson’s [4] view that no irm is an island and in line with
Håkansson and Persson [5] who describe irms’ interaction in supply chains as integrated hubs
of interaction with various heterogeneous suppliers and customers, this entails some level of
network complexity. This complexity resides at diferent levels of QUERY. Perrow [6] classi-
ies levels of analysis, starting from the individual level, through group, department, division,
organization, inter-organization and inally at organizational set. The inter-organizational
level is commonly termed as the relationship. The organizational set is commonly termed as
network or chain in supply chain literature, a systemic coniguration of diferent irms
working together. In this study, this network is a time-limited loosely coupled project orga-
nization bound by a common functionality of developing sustainable seafood transport. All
these layers of reality in business can be considered as subject to complexity, and they do have
impact on perceptions of what in practice is customer value in diferent ways. What is vital is
having a fundamental understanding about the “value”, which is dynamic in real life and can
be found at diferent organizational levels. Furthermore, the characteristics of value at these
levels interact with each other. Clearly this paves the way for a research proposition regard-
ing what characterizes such interdependencies, but this is out of bounds of this book chapter.

In this chapter, we seek to address practical issues regarding perceptions of value associated
with reallocating freight from road to SSS transport. This implies the need to simplify our
analytical framework. In relation to the levels of analysis, we concentrate on customer value at
the organizational and network levels as well as the relational level that binds irms together.
These levels of analysis are illustrated in Figure 3.
The choice of omiting the more personal levels of analysis is because of the data, which
mainly encompasses value perceptions regarding the diferent organizations involved in the
network, regarding the research issue at hand. These perceptions are considered embedded
in a network that is characterized, in line with Gadde et al. [7], by its atmosphere. A key
feature of network atmosphere is the level of trust inluencing the willingness to integrate.
64 Agricultural Value Chain

Figure 3. Levels of analysis applied in this study.

In this case, we focus on integrating a project organization associated with food freight real-
location. Describing a network as a set of interacting business relationships also entails that
various relationships are interdependent. An action in one business relationship has impact
on a larger network organizational structure consisting of more or less integrated irms. In
this chapter, we propose a form of domino efect on other relationships, and this includes
how value is perceived as emergent due to interaction in diferent relationships afecting the
network atmosphere. Finally, it is vital to stress that, even though customer value is ulti-
mately measured by the customer, other network actors may also perceive this factor. This is
captured in the industrial marketing literature as the concept of “value proposition” [8]; value
may be proposed by the supplier, and this creates foundation for dialogue to create customer
value through interaction.
The value proposition implies therefore a boundary spanning efort by the supplier, aiming to
reach out to interact with the customer and thereby learn irst-hand what the customer needs
are and is willing to pay, for a market ofering. This market ofering is accordingly viewed as
reciprocally interdependent in the business relationship between the customer and supplier.
This is clearly a process, a mutual adjustment. The customer or supplier may have carrying
degrees of power, but seldom does one dictate over the other a conception of “value”. This
process of adjustment, learning what is valued for one’s own irm and the other irm, is again
embedded in a network structure.
This structure can also be conceived as having properties concerned with the meaning of
“value”, as discourse or alternatively termed as “network culture”. Networks may, fol-
lowing Cooren [2], be associated with a common binding discourse. At this aggregate
level, customer value is never a precisely measurable artefact. People are self-relective,
and what we like and what we prefer are in continuous change, both cognitively luid and
contingently dependent. In our case, this discourse can be described as a business culture,
rules, canons and norms that deine the network as a collective of irms. The network may
be considered as a societal level of investigation to the degree that organizations partaking
in the network are not merely business organizations. The network may also be consid-
ered as an ecosystem This implies taking into account in addition to economic concerns,
also nature and societal concerns. In this study, such environmental concerns are consid-
ered contextual, not part of the network itself. The studied network does, however, consist
of a mix of business organizations and public entities. Value is a complex phenomenon
in a business network seting. We now turn to considering the shipping solution value is
associated with.
 The Value Aspect of Reallocating Seafood Freight from Road to Sea Transport 65
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4. Short sea shipping

The main common transportation modes are classiied as either road, sea, air, pipelines or rail.
In a supply chain, which is a business context, value perceptions will be the strongest inlu-
encer when choosing among these alternatives. From a business perspective of the individual
supply chain actor, priority is given to achieve company proitability. Choices are, however,
limited by the reason of distance and characteristics of goods. Recent technological innova-
tions facilitate easy shifts between diferent modes possible. The container is a key resource in
such transport conigurations. This functionality is called intermodal transport. Furthermore,
especially when transporting fresh perishable foods, reefer containers secure food quality and
low-cost transport intermodal changes. Traceability is assured through temperature control
that also enables maintaining a standard quality of ish products over a prolonged timeline
of transport duration. The quality of traceability is dependent on the level of supply chain
integration.

Intermodal transport represents combining minimum two transport modes in a particular

transportation chain without any change of container; a combination of road, rail and water
transport. Initial and inal road transportation must be as short as possible [9]. This means
that intramodality, following Boske [10], can be described as a process of transporting freight
through a systemically organized network involving combinations of diferent modes of
transport in which all the component parts are seamlessly linked and eiciently coordinated
using standardized transport resources, the container being the core facility. Intermodal
transport concerns investment infrastructure cost, maintenance cost for terminals, purchas-
ing cost for vehicles and equipment and cost for transfer and storage. These factors constitute
the transport process associated with intermodal transport.

The overall economic beneits of intermodal transportation are proposed by Yevdokimov [11]
as divided into four elements: (1) an increase in the volume of transportation in an existing
transportation network, (2) a reduction in logistic costs of current operations, (3) the econo-
mies of scale associated with transportation network expansion and beter accessibility to
input and output markets. The cost structure for the transportation at each phase, however,
is unclear and thereby hard to break down to create an accurate perception of the total that
intermodal transport at an aggregate network level is cost-efective over long distances and
in large volume. This is due to the inter-organizational character of this form of transport;
companies reluctantly only share their cost information.

In the studied case, the supply chain undergoing potential freight reallocation, the combina-
tion of sea and road transport is advocated by the network actors with the intention to achieve
eicient transportation performance. One of the reasons, as described in the introduction, is
to utilize a multimodal concept with SSS as the main transport mode, to reduce road acci-
dents, and to reduce traic congestion in urban areas. Road driving in residence site has arose
noise pollution and unsafe conditions for people in the local area. In addition to that, less
greenhouse gas emission is desired in the long term from the perspective of green logistics.
66 Agricultural Value Chain

According to Rodrigue et al. [12], the term “green logistics” refers to logistics designed not to
only be environmentally friendly but also economically functional. This implies a statement
of network value, a part of the discourse this SSS development project is embedded in. There
is no evidence that taking environmental considerations into logistics system would have
negative inluence on logistics performance [13].
Taking a supply chain perspective, managing this chain involves integration of this multi-
modal transportation system through a chain of interdependent suppliers. The customer,
in this picture, is each intermediary, with the end user far of in the distant markets waiting
to purchase and later eat their quality seafood from, in this case, Norway. Customer value,
perceived by an end user in the food chain, is accordingly fragmented. It is perceived as
a sequentially interdependent, a cumulative quality where each leg of transport impacts
on the following. In such long-linked sequentially interdependent inter-organizational
entities stretching from raw-material source to consumption, typical for manufacturing
and for modernistic food production, sequential interdependencies are prominent. A fol-
lowing activity is dependent on the completion of a previous one; when such activities
are networked between diferent irms, this creates interdependencies, a form of network
power.
Thompson [14] describes variation in power-based interdependencies as being either recipro-
cal, pooled or sequential. In cases of dominant sequential interdependencies, resource pooling
and intense interaction (reciprocity) support a long-linked form of production. In services, it
is either core pooled or reciprocal interdependencies that are supported by sequential timing.
This means that logistical coordination is a prime efort in food chains. Modernistic indus-
trialized) food chains are a particular form of supply, similar to manufacturing. Activities are
such supply chains need, fundamentally, to be coordinated as series of events in a process. To
synchronize the activities carried out in supply chain processes, a series of transport services
need to be suiciently integrated and coordinated. The aim of integration concentrates on
lead time minimization and improvement on resource utilization [15]. Following Macharis
and Bontekoning [9], intermodal transportation assumes optimization of its individual modes
not only separate organizational transport components but also as a part of transport network
as a whole system. Since this concerns inter-organizational integration, this also is a supply
chain management issue.
The case of infrastructure development at Hitra to accommodate sea freight involves a par-
ticular form of sea transport sending goods from Hitra for a shorter distance, for reloading
to mainly road transport, but potentially also long-distance sea transport in cases of frozen
seafood transport. SSS usually deined as the shipping of cargo lows for quite short distances
along a coastline. The EU Commission considered SSS as the only freight mode that can ofer
a realistic prospect of substantial modal shift from road, as well as improve competitiveness
and reduce environmental damage” [16]. In the current supply chain, considered as a whole
system, SSS is a supplement to road transportation. Transport intermodality is accordingly
a facilitator of eicient SSS. The viability of SSS also depends on type of transported freight.
This consideration is generically considered when choosing the right transport mode. Air
transport is fast but costly and is best suited for lightweight and smaller goods, road transport
 The Value Aspect of Reallocating Seafood Freight from Road to Sea Transport 67
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is convenient over short to medium distances since it provides door-to-door transport and
sea transport is inexpensive but slow and can carry heavy bulky goods. In addition, in terms
of environmental concerns, sea transport can carry large volumes in a single vessel and are
therefore considered more environmentally friendly. Also road wear and accidents make SSS
a preferable mode of transport compared to road transport of the goods.
To secure logistically eicient transport, SSS involves the use of technically adapted ship
designs. The main technologies of the SSS are Float-on-Float-of FLO-FLO , Lift-on-Lift-of
LO-LO and Roll-on-Roll-of RO-RO . The FLO-FLO ships are also known in which the loat-
ing cargo is loated into the ship’s cargo space by submerging the ships’ loading area. A typi-
cal disadvantage of this arrangement is that the ship must be lowered out at sea, which allows
the loating vessels to be stowed into a stowage level vertically ixed within the ship. In addi-
tion, this submerging operation of the ship must be adjusted to ix deck or girder structures,
which segregate the cargo containers at various cargo levels. Such intermodal transport is
used mainly in developing countries with limited harbour facilities.

The LO-LO vessels, illustrated in Figure 4, are container vessels transporting a wide range of
products that must be loaded and discharged in the port by crane and derricks. The cargo is
lifted on the vessel according to a particular plan that is required by technical characteristics
of the vessel, “not equipped with ballast-adjusting mechanisms. The LO-LO solution will be
relevant for other types of cargo and included in use at Hitra. These are vessels commonly
considered as “container ships”.
The RO-RO technology is used for the fresh ish transportation in the studied case. Roll-on-
Roll-of is the technology, which is applied in the design of ships and allows to carry wheeled
cargo. This is the only one solution for sea transportation of heavy-wheeled freight such as
trucks and other bulky construction and road machinery. According to Medda and Trujillo
[17], the RO-RO vessels need considerable investment that implies the requirements for a
satisfactory level of the commercial operations. The RO-RO vessels have built-in or shore-
based ramps that allow the cargo to be eiciently driven on and of the ship during loading/

Figure 4. A FLO-FLO ship operation.

68 Agricultural Value Chain

discharging in the port. They can be described as freight ferries. Much as a car ferry, the ship
load in our case trucks is driven on/of the deck on its own wheels. Advanced engineering
technologies allow the ship owners to compete in the SSS market through the functional-
ity optimization of RO-RO ships and lexibility in cargo access equipment. The use of stern
ramps suitable for the diferent types of quays and port facilities, custom-made shore ramps,
provides highly eicient and quick loading and unloading [18].

RO-RO technology illustrated in Figure 5 is primarily associated with higher speed of load-
ing and unloading of goods compared to traditional container vessels [19]. The capacity of
such vessels is unlimited compared to other modes of transport, illustrated by specialized car
transport vessels used for long-distance transport. While car transport vessels are adapted to
this particular type of freight, the SSS RO-RO ships are constructed as smaller vessels under
, DWT adapted to reap beneits of quick loading and unloading, particularly important
when ships call at numerous ports loading smaller consignments of freight.
Appling RO-RO technology implies a truck is loaded at Hitra or Frøya, driven to the port at
Hitra and loaded on the ship. The truck is a semi-trailer, where the trailer section containing
a reefer container remains on the vessel, while the truck returns for further engagements.
Likewise, at the port of destination, a new truck picks up the trailer for further transport. The
trailer has an upper side rail that is a part that is a beam that runs the length of the upper
frame of the trailer. The rear relector is a light-relecting device that marks the back end of
the reefer. The lower side rail is a beam that runs the length of the lower frame. Support legs
hold the semi-trailer in a horizontal position. A piece of metal that protects the end of the sup-
port leg of the reefer is called the sand shoe. A front relector marks the front end of the reefer
using a light-relecting device.

Much of the long-distance refrigerated transport by truck is done using such trucks pulling
refrigerated semi-trailers (reefers) only onto the vessel, the decoupling form the trailer. The
number of trailers involved into the transportation process is estimated to be 100 semi-trailers
due to skip capacity. Return cargo is a crucial and still unsolved economic factor. The project

Figure 5. Loading a RO-RO ship.

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is based on the concept of collaboration between supplier, recipient, shipping company, road
logistics provider and harbours. The trailer will function both as a cargo carrier and a distri-
bution unit.
A vital factor in all transport logistics is the speed. This impacts on the time of delivery and
accordingly on customer value. A negative correlation exists between vessel speed and vessel
capacity. Therefore, according to Woo and Moon [13], maintaining certain vessel size is also a
basis of speed control. From the terms of decision-making, managers count economic saving
from slow speed and extra income which is raised by speed-up service. This shows how value
incorporates in transport both cost and beneit perceptions, and this needs to be balanced.
This balancing can be associated with mathematical optimization principles. However, when
considering the environmental performance, slow speed is the preferable choice in mari-
time shipping if it is still possible to be able to meet given time limits. This entails that when
widening the level of analysis to the network level, encompassing both the environmentally
concerned society and the nature itself as substance mater, further perceptions on what con-
stitutes value emerge. In the model of speed optimization on the ixed shipping routes, the
main business objective is to reduce fuel consumption. This is possible to achieve by adjust-
ing the sailing speed. Given capacity constraints of ships and harbours, as well as uncertain
weather conditions, it is however diicult to optimize ship routing. Shipping is in practical
circumstances, therefore a complex process where optimized routing represents plans func-
tioning as an indicator.

5. The environmental context

In this section, SSS is discussed in the context of the natural environment. First a few words
are provided on what constitutes environmental concerns pertinent in relation to transport
mode selection. Focus is here on the factor of global warming, seen as a human-inlicted phe-
nomenon. The processes of goods production, transportation, inventory storage and end cus-
tomers’ consumption are causing greenhouse gas (GHG) emissions. GHGs in the atmosphere
are major foundation of the greenhouse efect. Mora et al. [20] pointed out that if the green-
house gas emissions are not reduced, humanity can face a serious problem as the excess of
the historical planet’s temperature already in 2047 with its impact on ecosystems, biodiversity
and the livelihoods of people worldwide [21].
After oil and gas extraction, manufacturing and mining activities, the transportation of goods
is among the most polluting industrial activities to the environment and ecosystem. Road
freight transport is a major source of carbon dioxide (CO2) emissions that comes from the
burning of petroleum-based products in cars engines. The amount of other greenhouse gases
emited during fuel combustion is quite small. There are gases as methane CH4), nitrous
oxide (N2O and hydroluorocarbon HFC emited during mobile air conditioners and
refrigerated transport use. However, construction and renovation of port area emerge large
amount of pollutants into air and water, which threaten the lives of local people and natural
surroundings [22].
70 Agricultural Value Chain

Reduction of emissions is an important objective of any national environmental policy.

According to the international Kyoto agreement, Norway is aimed to reduce greenhouse gas
emissions to 84% of the registered level of emission in 1990. There is also an agreement implied
by Norwegian parliament in 2008, where the emission reduction is set as a national target. The
Ministry of Transport is working to achieve these goals by stimulating public transport and
innovative types of transport, by investment in new technologies and encouraging a change
to vehicles with lower emissions. This policy is also supported by the economic instruments:
CO2 taxes and green energy subsidies. These policies are intended to promote transition to
increasingly using environmentally friendly transport modes.
Road transport involves consuming unclean fossil fuels, which emits CO2, NOx, sulphur com-
pounds and other toxic substances. These substances seriously damage air quality, also at
a local level. It is a serious health concern, especially for people with breathing disorders.
Rommert et al. [23] analyse choice of transportation (transportation mode, intermodal trans-
port, equipment choice and fuel choice) against their environmental impact. This study
reveals that larger scale of cargo to transport will lower CO2 emissions per g/t/km. Among all
transportation modes (container vessel, rail, truck and plane), transport by vessel is the most
CO2 eicient and ofering highest fuel economy. It is a price-wise and economical transport
mode. Therefore, the SSS is atractive from an environmental perspective in likewise as being
economically feasible [16]. This form of transport usually does not allow door-to-door deliv-
ery and is slow.

Governments are not siting idle while ships pollute the air. Sea transportation is thus subject
to a particular tax system. The Sulphur Emission Control Areas (SECA) for shipping compa-
nies was entered into force in September under new EU legislation. There have been intro-
duced certain taxes and requirement to use fuel where the sulphur content should not exceed
0.1% when operating within the SECA. The SECA includes North Sea, which Norwegian
shipping companies are crossing during their import/export operations. Therefore, it will
have impact on operation cost and will increase charges to the customers [24]. Ships emit NO2,
but this transport-related value can be improved based on the available or a new technology:

- Fuel switching
- Development of new technologies and vehicles that are more eicient
- Minimization of fuel use by adopting driving practices

- Improvement on maintenance
- Switching from one transport mode to another during a transportation chain

In our case, all transportation related to export of fresh ish to the EU countries represent
about 130 mill.ton.km/year with emissions equal 76 g CO2-ekv./ton.km [25]. Sustainable
transportation is a transportation that satisies individuals and society’s needs in a long-term
perspective. This implies production sensitive to human and environmental health concerns,
in equal conditions for current and future generations. Sustainable transport is economically
eicient and energy efective, competitive, operating ofering alternative transport solutions
 The Value Aspect of Reallocating Seafood Freight from Road to Sea Transport 71
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and accomplished by the use of innovative technologies. A sustainable transport system

considers environmental aspects and aimed to reduce emissions and waste, minimize con-
sumption of natural rare resources and decrease the use of land and production of noise. In
addition to this, there is a strong transport link between sustainable transport and reduced
accidents and congestion on roads. Sustainable transport contributes to economic develop-
ment. Social progress and living quality are improved by implementing the concept of sus-
tainable transport. Thomaeus [26] points out that a transport system can be concluded as
sustainable where economic eiciency and environmental protection complement each other
or in a balance with acceptable level. The adjusted system of information sharing and integra-
tion is vital for sustainability of fresh ish supply as perishable goods and greatly inluences
the waste reduction. The estimated food waste from manufacturer to the end customer in
diferent supply chains is about one-third from the production volume. Some major causes of
waste in fresh ish supply are weather conditions, lack of coordination of supply lows, road
accidents, failures in the transportation process, shortcomings in the shelf-life management
and inconsistency between demand and supply.

Taking a sustainability perspective, it is imminent to include considerations of food waste.

This is because much of the seafood transported from Norway is in a fresh state making them
perishable goods. Poor transport quality increases the risk of food waste during transport
impacting on ethical considerations regarding eicient food use in relation to human welfare
aimed at a global level. Food waste reduction involves fundamentally improved coordination
of food production volume with customer demand and improvements on the eiciency and
performance of the supply chain as a whole system. In the case of fresh seafood supply, it is
necessary to consider the speciicities of transportation and features of the product, afect-
ing management and performance of the whole chain [27]. The logistics providers in fresh
ish supply chain targeted to deliver the product to the end customer in perfect condition
and maximize available shelf-life time. Seafood that is poorly delivered indicating transport
discrepancies may be improved by changing the design and use of the products. Three main
characteristics of the food market, afecting the structure of the supply chain, were identiied
by Kitipanya-ngam et al. [28]:

. Demand uncertainty. Customer demand is inluenced by natural factors as weather condi-

tions and seasonality and encouraged by promotion actions [29].

2. Customer order lead time. Usually, lead time required by customers is short.

3. Supply chain lead time allowance meaning perishable goods are characterized by lim-
ited life cycle and eiciency in the supply chain allocating the sharing of the expected time
to transport and handle goods between the logistical elements of supply chain is of crucial
importance.

The perishability of the goods does not permit creating an inventory bufer against demand
changeability and failures in the transportation. According to Ahumada and Villalobos [30],
this can be compensated by lexibility in the supply and increased speed. Collaboration
between participants at an operational level of the chain and as minimum partly integrated
support system together with the use of advanced forecasting techniques allows to achieve
72 Agricultural Value Chain

required level of speed and lexibility [30]. This may improve logistical coordination in the
supply chain. The unit of analysis in our case study is fresh ish supply chain that consists of
the following main elements: producer, port of loading, logistics provider, port of discharge
and end customer. We now turn to consider the economic considerations of this conglomerate
organizational entity, the studied network and its organizations.

6. Supply chain and logistics

Customer-responsive supply chains, the “value chains”, have the capacity to combine scale
with product diferentiation, and cooperation with competition, to achieve collaborative
advantages in the marketplace. It makes commitments to the welfare of all strategic part-
ners, including appropriate proit margins, fair wages and long-term business agreements,
balancing cost with beneit perceptions. It emphasizes high levels of performance and inter-
organizational trust. A supply chain thus consists of a system for sharing information among
strategic partners, including shared values and vision, shared information and shared deci-
sion-making [31]. A value perspective of the supply chain as unit of analysis for transport
mode alteration, accordingly, places focus on value perceptions of the supply chain collective
studied in this case regarding reallocation of freight to the potential of SSS.

Economic maters in such a supply chain structure can be measured by service level, and
this metric is afected by the factors like time to market, product quality, customization and
lexibility [3, 7, 15]. Eiciency is then measured by calculating the economic saving of trans-
portation cost and positive contribution on environmental protection. Despite advantages of
supply chain integration, decision-makers always balance saving on supplier integration and
relative cost raised by it, the transaction cost factor. Perols et al. [32] describe two types of
supplier integration having paradoxical impacts on time to market. Time to market can be
accelerated by supplier process integration while product integration slower time to market.
And it also reveals that a positive technology spillover efect occurs with successful assimila-
tion within a strategically organized supply chain.

The main participants of the freight reallocation project are:

• Municipalities: Hitra and Frøya

• Members of The Coastal Harbor Alliance: Kristiansund and Nordmøre Harbour IKS with
Hitra Coastal Port as a part and Vikna port authority Rørvik Harbour KF

• Producers/aquaculture: Marine Harvest, Lerøy and SalMar

• Road transportation companies: DB Schenker, Bring and OTTS

• Shipping companies: Blue Water

Their role in the seafood export chain varies. Some of these networked actors are directly
involved in goods handling and/or ownership; others, such as the Hitra municipality, are
only indirectly linked within this chain. When the projected SSS is in operation, these sup-
ply chain actors need to cooperate together to detect and reduce environmental impact, the
 The Value Aspect of Reallocating Seafood Freight from Road to Sea Transport 73
http://dx.doi.org/10.5772/intechopen.68779

carbon footprint and pollutions upon the whole supply chain and gain economic beneits
from their somewhat detached and local network perspective. This represents the operation
perspective, a continuous network efort. It is expected that the production of aquaculture will
grow to , tons by . Production will be ive times larger than the current produc-
tion volume in 2050. According to long- and short-term forecasting, a considerable increase in
the production of seafood and other goods is estimated and will require new transportation
solutions that will reduce CO2 emissions caused by trucks, road accidents and road mainte-
nance coast. New automotive technologies, improved fuel, development and improvement
of the road system promote a sustainable growth of road transport share in transportation.
All export lows of fresh salmon are transported by road between South Norway and the
EU markets. Salmon road Fv. (regional highway shown in Figure 6) 714 is connecting the
coastal municipalities Snilljord, Hitra and Frøya, Orkanger and Trondheim. The . -km-
long stretch between Haugen in Orkdal municipality and Sunde in Snilljord Municipality
has low standard. The daily goods low on trucks loaded with salmon lies between and
semi-trailers per day. This corresponds to 17,000 semi-trailers from Hitra/Frøya yearly. Sixty
percent of them are oriented to the EU markets. Traic igures from Nord-Trøndelag are more
than 3000 per year. Considering together these volumes, there is a possibility to reduce the
number of semi-trailers between Mid-Norway and Europe for 12,000–13,000 vehicles not con-
sidering the return cargo lows. The use of foreign transport logistics companies has proven to
increase competition and the number of accidents on Norwegian roads considerably. During
winter period, transportation becomes especially challenging. Such conditions are an impor-
tant reason for development of the terminals and harbours of intermodal transportation in
this supply chain.

The oicial opening of Hitra Port took place on October . Regular container ship calls
started in November 2014. After 5 years, the main elements of the infrastructure are on the
place. The infrastructure of the port includes production and social components as engineer

Figure 6. The “salmon road”.

74 Agricultural Value Chain

communication, gas, electricity and water supply system with huge water reservoirs and
waste water solution. Hirtshals Harbour in Northern Denmark was initially considered a
starting point for the establishment of a sea transport connection. The sea transport solution
will reduce current cost of road transportation by 20–25%. The price depends on volumes of
return cargo lows that will be obtained over some time. Government support and inancing
are of high importance in implementation phase. The calculations that have been done show
that an increase in return cargo lows by % can reduce prices about % depending
on the distance from receiving port to the end destinations [25]. Handling equipment, com-
munication lines, two new aquaculture plants, warehouses, facilities of the companies pro-
viding service and maintenance for aquaculture and marine industry and another buildings
and facilities are included into the project and will be built after some time.

Hitra Port is located right in the fairway between Trondheim and Kristiansund and is therefore
commonly considered a natural traic and logistics hub for seafood and ishing industry in the
Hitra/Frøya region. Hitra Coastal Port and its underlying commercial space, Hitra Industrial
Park, total represent a development area of around 1.5 million m2 (1500 da). They are labelled
as a “seafood logistics centre”. The seafood logistics centre is directly connected to the main
origins of seafood production in Mid-Norway. A well-connected transport network and exten-
sive logistics capacity makes it possible to manage further increase in future seafood transport
demand. The salmon production industry is growing steadily. Indeed, it exhibits great oppor-
tunities for cooperation with the EU markets and excellent possibilities to service Mid-Norway
and Northern Norway. Many shipping companies and transportation companies are interested
in using the Hitra Port as both a seafood and general cargo/unit loads hub, storage hotel, a
regional distribution centre, trans-shipment terminal, hub for speed boats and ferry passengers,
special storage, etc. Several companies have expressed interest in establishment in the area; some
companies are in negotiating position. The world’s largest salmon producer, Marine Harvest,
has now secured 50 da (+ option for another 10 da) to build new salmon factory in this area.
There will also be good opportunities for Hurtigruten (the daily coastal liner carrying both light
freight and passengers) and cruise vessels in the port. Hitra municipality will establish a future-
oriented and sustainable environment. The convenient location, along with great and new quay
and harbour facilities, will provide great opportunities for economic development in the region
and within the company. This indicates a multiple use potential for the harbour facility at Hitra.

Much infrastructure has already been developed at Hitra during the last 2 years. The cargo
terminal Hitra Coastal Port is operational from this year and includes terminal facilities, areas
and equipment appropriate for both RO-RO and LO-LO services. The port’s logistics centre
provides possibilities for frozen and cold storage, ofers warehousing and transit storage and
provides a good distribution systems via Fv714 that is connected to the port through Hitra
tunnel. The upgraded Fv is km to Orkanger and to Frøya and is conducive to eicient
cargo distribution.

Originally, the municipality decided to build the 120 acre industrial area of north-west side
of Jøstenøya where the industrial park is located at Hitra. The irst plots are already sold to
Marine Harvest AS and Brødrene Sunde AS that secured themselves the land for development.
Now also Bewi, Sunde Group and Lerøy are in the course of building factories at the industrial
park adjacent with the two salmon factories. The Bewi company and their competitor Sunde
 The Value Aspect of Reallocating Seafood Freight from Road to Sea Transport 75
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Group each will build a new factory for the production of polystyrene boxes ish crates facto-
ries. They do this in order to increase capacity and to be even closer to the aquaculture compa-
nies that also will establish themselves in the region. This will contribute to greater security of
supply for Bewi’s customers in the region. Bewi considers that it is important to be established
in an industrial hub that Jøstenøya will be. The overall strategy of Bewi and Brødrene Sunde is
to be a supplier of packaging for both aquaculture and agriculture and building industry. This
implies they are competitors in the clustered location. Their overall logic of having production
facilities at the industrial park is to provide their customers even beter in quality, lexibility
and environment through their innovative and trend-seting products, by being near them.
The juxtaposition of the packaging factors implies considerable investment leading to logistics
eiciency. Keep in mind that the volume of packaging freight, since the type of packaging
used may not be folded or made smaller in any way for transport, equals the volume of pack-
aged goods freight. By building of a new factory, Lerøy plans to merge factories in Hestvika
and Dolmøya to one factory in Jøstenøya. These two factories work reasonably well today. The
company Lerøy has been working for several years to merge the two factories and make the
production process more eicient. This implies increase production eiciency for this com-
pany as well as logistical improvement since the two factories are now to be co-located by the
harbour.

Due to demand by the companies involved in establishing themselves in the industrial park
at Jostenøya, the industrial area must expand eastwards with another 60 acres. The cost of the
expansion is estimated to million NOK the municipality inances it by borrowing through
a loan). It is important that companies build their facilities quickly, so that the municipality
can gradually collect tax on the investment in Jøstenøya. The Hitra municipality has a strong
position and extraordinary potential for industrial growth in national context. It may be pos-
sible after meetings with the Ministry of Transport where the project was presented to apply
for start-up support for fresh ish exports from Mid-Norway. It is given that the full power of
a restructuring of the transport side must happen this year.

These descriptions reveal how value in the supply chain clearly is diferentiated between the
actors, and that value is networked. In addition, through networking what constitutes a good,
valued solution becomes an emergent outcome of this type of exchange process. The discus-
sion also is interesting because it does not reveal choice of transport mode as on the agenda,
even though the industrial park also is designed as a harbour. It is therefore a clear implication
that this is something the Coastal Alliance needs to market to the companies establishing them-
selves in the industrial park. This is because it is through the business relationships between
the seafood exporters and their customers that the choice of transport mode is decided upon.

7. Conclusion: value as a networked phenomenon

One of the main indings derived from this study is that the concept of supply chains is
contingent of various developmental projects. The design of this study reveals this since its
direct focus to challenges associated with freight reallocation from road to SSS through this
study intentionally does not illustrate the seafood supply chain itself in detail. The provided
76 Agricultural Value Chain

narrative in this chapter considers accordingly features of this development project. This proj-
ect organization is relatively luid. It has no clear starting point, and it is unclear whether the
activities to secure SSS freight of seafood by some form of political body, which this organiza-
tion is in fact, will ever cease to exist. It is diicult to judge this as ineicient or working
well”, since this project represents thereby a political organization. It is an expression of value
concerns from irstly a societal level, including conveying environmental concerns held by
society at large, and secondly the economic concerns of the companies involved in this proj-
ect. Value is beheld by the perceiver, and this value is a contingent factor.

During inquiry, the researchers also encountered events which disrupted this investigation. For
instance, actors became at a stage much more secretive due to what a logistics service provider
perceived as unwillingness from central Norwegian government to support this reallocation
efort. A perception of the supply chain as a culturally embedded game emerged. Clearly such
perceptions are vital when contemplating the role of “value” in both the devolvement project
itself and the value of economical salmon supply, being the aim of the project. This indicates
that value is not limited to considerations associated with the perceptions of the various actors
in this developmental network, but that value changes due to actions by one actor. Value in the
project is networked and reciprocally interdependent. Actions are done by single networked
actors, this leads to changes perceived by other actors and then these changes challenge the
actors to enact upon these changes to make sense of the changed situation. This enactment
through network interaction leads to actors rethinking how they further act in the process of
development. This provides us a strong suggestion that “value” in the supply chain is a dynamic
phenomenon. This statement implies we consider the developmental project as a supply chain
itself, associated with levels of integration and challenges related to trust and coordination, dif-
ferent from the supply chain this project of freight reallocation is supposed to impact on.

Finally, within supply chain management literature, developing “customer value” has
atained widespread use. Its use is almost synonymous with ataining a customer-responsive
supply chain. Increasing atention and awareness to customers through the use of lexible
resource implies creating an agile supply chain. This may be viewed as a source of com-
petitive advantage. Through this study, focusing in those value resources in a particular food
chain in diferent space and time dimensions, this space-oriented and static understanding is
viewed as simplistic.

Through this study “value” in a supply chain context emerges as dynamic, a complex phe-
nomenon. There are several aspects of this complexity revealed through this study. Value
is networked. First, value is diferent in relation to the supply chain itself and the develop-
mental project. This is, of course, related to that this study does not concern the supply chain
of seafood export itself. Second, the supply chain is a network consisting of diferentiated
actors, a source of both complementarity and conlict. From a geographical point of view, this
space dimension implies separateness and distance hampering intense personal interaction
and that conceptions of value may difer between the diferent interdependent supply chain
actors. While supply chain management, with its rather closed systems view, postulates that
supply chain actors should integrate under the light of a common articulated purpose, this
 The Value Aspect of Reallocating Seafood Freight from Road to Sea Transport 77
http://dx.doi.org/10.5772/intechopen.68779

to align such value perceptions, we question the usefulness of this quest. Similarity between
irms increases friction and poses threats of paradoxical happenings. In this project organiza-
tion, it is pooling the similar actors that is especially challenging. They are at least potentially
competitors.
Diversity in the network is a prime source of complementarity and a source of force to inno-
vate. The spread of value perceptions also leads us to consider that customer value is not
necessarily beter than the other value considerations. When achieving customer value, this
is commonly in supply chain academia and practice considered as a hierarchical higher order
value, as an explicit and therefore static purpose formulation; this rules out that interaction
between supply chain actors can lead to a valuable learning process that customers may learn
from the suppliers to improve the value of supply. Connectivity also implies the right to with-
hold sensitive information, embedded in a continuously developing project discourse. This
leads us to the third and inal observation. Value is a dynamic phenomenon. This feature of
change is dependent on quality interconnectivity in the supply chain. This implies that inte-
gration is a key efort, not aligning explicit values, but to interconnect actors to communicate,
to learn. Value is perception, and value therefore is uncertain in the case description. This
implies a view that managing a supply chain can be viewed as a complex process, possibly a
system. A systems’ view is feasible when development seeks to integrate the network around
a common accepted statement of supply purpose.

The main recommendation regarding the aim of the developmental project is to develop a net-
work discourse (atmosphere, culture) where trust and learning are highlighted. Integrating
should be facilitated by organizing, and continuously improving, interconnectivity between
the project actors. The main force of development should accordingly be focused not irst on
seeking common values but in developing connectivity, trust and values regarded as emer-
gent network properties. Value has proven emergent in this strategic project network. It is not
an easy path it may fail. We simply propose heightening integration eforts this to a higher
level of, what may be called, strategic thinking, regarding project design. Following this pro-
cess view, there are no guarantees regarding output characteristics. Focusing on the process
and not the output certainly involves risks. Further research may be associated with inquiry
more directly into the development of supply chains form such a process view. This may be
organized following case study research strategy where action research may be considered as
one of the main research pillars in such a study.

Author details

Per Engelseth*, Irina V. Karlsen, Shulin Huang and Arild Hof

*Address all correspondence to: peen@himolde.no
Department of Logistics, Molde University College, Specialized University in Logistics,
Molde, Norway
78 Agricultural Value Chain

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 Chapter 5

Agricultural Diversification in Japan

Makoto Hirano

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.73192

Abstract
In recent few decades, Japanese agriculture has been facing many problems such as low
profit rate, lack of labor force, abandonment of farmland, losing competitive competence
for low-price, imported products, and so forth. One of the trials for encouraging Japanese
agriculture by the government is agricultural diversification, which is a kind of restructu-
ring value chain in order to gain profitability of farmers. The strategy is that, by integ-
rating some elements of value chain of food industries including primary industry
(agricultural production), secondary industry (processed food manufacturing), and ter-
tiary industry (food retails and restaurants), and re-allocating farmers’ business resources,
farmers could be much more activated and their profit would be gained. In the past
several decades, Japanese agricultural supply chain has strongly depended on Japan
Agricultural Cooperatives (JA), and this caused some issues such as mismatching of
demand and supply and low profitability of farmers. The policy of agricultural diversifi-
cation was proposed to induce new integration of value chain and restructuring supply
chain for solving these issues. This chapter presents some successful cases of agricultural
diversification in Japan and infers the Key Factor of Success (KFS) of such trials.

Keywords: Japan, agricultural diversification, agricultural cooperatives, supply chain,

KFS

1. Introduction and background

In recent few decades, Japanese agriculture has been facing many problems such as low profit
rate, lack of labor force, abandonment of farmland, losing competitive competence for low
price, imported products, and so forth.

© 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative
Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited.
82 Agricultural Value Chain

Japanese contemporary agriculture was historically characterized by some policies on agricul-

ture by the General Headquarters (GHQ) governing Japan right after the end of the Second
World War in 1945. GHQ executed two important policies for reforming Japanese agriculture,
as follows.
1. Emancipating farmland from rich farmland-owners and re-allocating it to poor peasants in
order to activate Japanese agriculture and improve food production of Japan, which was
much damaged during the war.
2. Forming agricultural cooperatives [1] to advance the supply chain of food industries in
Japan, that is, establishing Japanese agricultural cooperatives (JA) [2, 3] in 1948 based on
Agricultural Association that was established during the war to control national food
supply.
The farmland emancipation policy resulted birth and growth of many independent
farmers, stimulated motivation of agriculture production by those people, and advanced
the food production in Japan at that time, and JA functioned as effective food supply chain
for Japanese nation.
However, after a long time passing, these two policies resulted in two serious issues for
Japanese agriculture.
3. The farmland emancipation policy resulted that the average level of the Japanese farmers’
production was lowered because the average level of the farmland area was lowered. The
small farmland area also obstructed modernization of agriculture by inducing cultivating
machines. The difficulty for inducing modern machinery system into agriculture caused
low productivity and high production cost of agriculture in Japan comparing to that in
other countries. According to the data of year 2010 by the Ministry of Agriculture, Forestry,
and Fisheries (MAFF) in Japan, the average farmland area per one farm in Japan is around
2 ha, that is almost 1/100 of that in the USA. Therefore, in the progress of globalization and
trade liberalization on food market, Japanese agriculture has been losing their competitive
competence.
4. JA has been grown to a huge organization along the growth of Japanese economy, as
indicated by the fact that the number of the total members of JA grew over 10 million in
2014. The business area of JA was enlarged to cover wide area regarding farmers’ daily lives,
such as banking, insurance, sales of seeds, sales and lease of cultivating machines, managing
super markets, managing gas stations, publishing newspapers, postal service, and so forth.
Particularly, their power on farmers’ banking became very large as indicated that they are
now dealing the amount of savings around a hundred trillion yen (circa a trillion US dollar).
By the growth of JA, their organization has changed to a large bureaucratic one and lost the
flexibility as a function of supply chain in agriculture. Because the distance between farmers
and consumption market became large in the huge bureaucratic supply chain system,
sometimes it became difficult for farmers’ products to fit the market demand.
The demand of Japanese food market has been changing along the change of Japanese society
after the war. The food preference of Japanese people changed from traditional Japanese dishes
 Agricultural Diversification in Japan 83
http://dx.doi.org/10.5772/intechopen.73192

to Western/American dishes, changed from house cooking to processed food, eating out and
fast food, changed from family eating to solitary eating, and so forth. The agriculture products
which could fit to the current Japanese food market have been changed, but many Japanese
farmers could not have caught up with the changed market, because they could not know well
about market in the division of labor in the conventional agriculture value chain.
Also, the complicated supply chain system of Japanese agriculture with many brokers, includ-
ing JA, retail shops, family restaurants, processed food manufacturers, and so forth, lowered
the profit of farmers. Their total sales in Japanese food industry are less than 20% of the total
food market transaction. The flow of the food material in Japan is schematically indicated in
Figure 1.

Low productivity and low profitability of Japanese agriculture resulted younger generation’s
moving out from farms to manufacturing factories or to other industries’ offices in urban areas
and thus resulted depopulation and aging in rural regions. This caused negative feedback to
regional agriculture and thus resulted in lack of labor force and abandonment of cultivating
fields in regions.

To overcome the situation of Japanese agriculture, recently MAFF in Japan made a policy of
agricultural diversification. The idea is sometimes called as “sixth sector industrialization.”
The connotation of the term is a combination of primary industry (agricultural production),
secondary industry (processed food manufacturing), and tertiary industry (retails of food and
restaurants) by re-allocating farm’s business resources and assets. In another word, by cover-
ing other elements in value chain of food industries, farmers are expected to adjust their
products to market demands and gain their profit by combining the other services. This is a
kind of re-allocation of resources and new integration of agricultural value chain. However,
the reality was that the policy could not work so easily because the Japanese traditional
farmers were not familiar with retail service or processing manufacturing. Most of them lack
the capability of diversification or integration of value chain.

Figure 1. Value chain of agriculture food industries in Japan.

84 Agricultural Value Chain

This chapter describes many successful cases of actual trials of agricultural diversification in
Japan to obtain implications on Key Factor of Success (KFS) of agricultural diversification.
(Some of the cases have been once introduced by the author in different aspects [4, 5].) If some
of the implications could be effective for the other regions/countries, this study might be a
small clue to advance the world agriculture.

2. Framework of research

This chapter describes totally seven cases of actual diversification in Japanese agriculture to
obtain implications on KFS.
The cases are classified to four categories by the difference of the key persons for establishing a
new business, as follows.
1. Cases of diversification by brokers.

2. Cases of diversification by processed food manufacturers.

3. Cases of diversification by retailers.
4. Case of diversification by business persons or enterprises.

The research focuses on the following standpoints.

a. Motivation and capability of key person for business
b. Relationship and collaboration between farmers and key person

c. Some other conditions for diversification, such as business strategy on branding/promo-

tion, market categories, market size, market characteristics, and so forth

Based on these case studies, KFS of diversification will be discussed. For each case, direct
interviewing and hearing to the key persons were effective to clarify detailed background and
conditions for business success. Particularly, it was too difficult to get information on key
person’s personal motivation for business and relationship between key person and local
community, only by literatures and public materials. Direct talking with those persons was
very effective in this aspect.

3. Cases of diversification by brokers

3.1. Case of Mr. Risho Azechi and the villages along Shimanto river

The first case of key person for agricultural diversification is Mr. Risho Azechi. He was
working for a local JA office at first when he was young, and then, he became a staff of an
enterprise (a third sector, a semi-public corporation) for encouraging local villages along
Shimanto river. The enterprise was named as “Shimanto Drama.” The whole staff members
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of the enterprise were only two persons at first. After that, he became a CEO of the enterprise.
His first mission was to encourage the local agriculture of these small villages in mountainous
area. But the agriculture products of these villages were not characterized with special advan-
tages. Their products were ordinary regional items such as local chestnuts, mushrooms, river
shrimps, and so forth.
One important event for advancing his business was the encounter with a certain designer,
named Mr. Makoto Umebara. Mr. Umebara was a very unique designer focusing on package
design and catch copy for local products. His first remarkable work on local products was the
designing package and making a catchy on bonito, fish. There was a fishery enterprise faced on
the crisis of bankruptcy. They were involved in traditional fishing using rod. Their fishery
product level was too small compared to that of large enterprise with fishing using net, even
though their fishes’ quality was good without damages by net. They requested Mr. Umebara to
design the package of a box for carrying bonito fish. Therefore, Mr. Umebara came up with a
catch copy for the product as “Professional fisherman fished it, and he cocked it in the best
way.” His design of the package emphasized the primitive taste of fishery by rod with simple
color construction. By his copy and package, the item suddenly became popular and could be
sold with higher price than that of ordinary bonito by net fishing. That is, he successfully
established a brand of rod fishing.

Mr. Azechi heard about the fame of Mr. Umebara and asked him to advertise the local
products of Shimanto Drama. However, Mr. Umebara’s strategy was not direct advertising
the products. First, he published a book cheering the wonder of the lives in riverside. The title
of the book was just “Water,” and the content of the book consists of many essays written by
many famous, eminent persons on politics, art, literature, illustration, and so forth. Generally,
it is not so easy to request those persons to write an essay for a book for such small local
villages and a tiny enterprise. But Mr. Umebara asked it to them without any special connec-
tion just only by saying “If you could accept our proposal, we would like to gift you a lot of
river sweet fishes for a year as a sign of appreciation, instead of money.” This unique approach
led a success, and around 30 prominent persons wrote an essay for them.
Mr. Umebara also recommended to issue a magazine tilted “Lives in river-side.” They estab-
lished a membership club to love lives in riverside and issued a magazine provided to the
members. The contents of the magazines were the description of the wonder of lives in river-
side in local mountainous area.
These activities were thought to be a kind of branding the villages along Shimanto river.
Gradually, their products were getting popularity with the Shimanto brand that has an
impression of “slow lives,” “sustainable life style with nature,” or so forth.
The relationship between regional farmers and Mr. Azechi is very tight and close. Mr. Azechi
contributed to the region through his business of retailing the Shimanto products. In that
sense, even though the regional farmers were not familiar with marketing and branding, Mr.
Azechi in behalf of them established business for them.
Now, Mr. Azechi is also managing Michi-no-eki, a local shopping store including restaurant
for regional agriculture products, established by the government for encouraging regional
86 Agricultural Value Chain

farmers. At first, the local government opposed to build it in the rural area where Mr. Azechi
proposed because of low traffic level. However, after once they built a shop there, over a
hundred thousand people visited there for half of a year in terms of the charm of the shop.

3.2. Mr. Mochifumi Toutani and citron business in Umaji village

Mr. Mochifumi Toutani was a leader of local JA organization of a rural village, named Umazi
(meaning “a road for houses”). The village was located in mountainous area, and their popu-
lation was only about one thousand. They were engaged in forestry industry in the past.
However, by globalization, their products lost the competitive competence comparing to low
price materials imported from emerging countries. They lost the income through globalization.
As they could not depend on forestry, they initiated a new business by utilizing citron (Yuzu, a
kind of oranges) that they were incidentally growing in the forest. However, most of their
citrons were deformed and not suitable for selling as a fruit item. So that, they made juice by
processing citrons. But it was also very difficult for them to sell their juice items because there
were lots of similar products in the market. Mr. Toutani then focused on marketing and
promotion on their citron juice. They emphasized that Umaji village was a rural, remote village
but was plentiful of nature, and the people’s personality in Umaji is primitive and friendly.
After the promotion effort of over 20 years, their village name became famous and the brand of
Umaji, accompanied the image of natural lives in mountainous area, was proliferated.

Particularly, improvement of Internet and nation-wide delivery service gave them advantage
in business. Nowadays, they were selling their citron products including juice, processed
seasonings, spices, and so forth through Internet and delivery service. They have their own
factory for processing citron, and the factory is opened for tourists as a kind of tourism service.
They have a restaurant in the factory and hold some kinds of attractions for gaining tourists for
the village. Their annual sales reach up to 3 billion yen (around 30million US dollar) with the
profit rate of over 10%. Growing citron and processed food industry on it are now their main
businesses to support the village.

Figure 2. Integrated value chain by broker.

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In these two cases, regional JA organization has very tight relationship with regional farmers,
and they were involved in effortful marketing, direct retail service, and also restaurant service.
Their businesses were also covering processed food manufacturing. The value chain of agri-
culture was completely reformed and integrated as schematically indicated in Figure 2, and as
a result, it gained the profit of farmers.

4. Cases of diversification by processed food manufacturers

4.1. Mr. Fumiya Hamamachi and ice-cream business utilizing regional agricultural products

Mr. Fumiya Hamamachi was originally a fisherman in the rural village. He was engaged in
fishery when he was a teenager. However, as he had a dangerous experience in the sea, he quit
fishery and changed his job to sales, by working for a certain enterprise. He was involved in
sales and marketing of ice-cream items that his enterprise purchased from a certain manufac-
turer. Spending many years of much effort, he got some stable customers for ice-cream items.
But the enterprise changed their strategy of sales and gave up selling ice-cream items. This was
the motivation why Mr. Hamada began to establish his own business to sell ice-cream items.
Because he had not sufficient capitalization at that time, he should have made much effort to
establish his own business. During the hardship of establishing his business, many village
people helped him by their primitive personalities and kindness. Those experiences affected
him and produced the strong feeling of appreciation to region and regional community, he
mentioned later. Gradually, he had advanced his business and made up his mind to initiate the
business of manufacturing ice-cream products by his own factory [5].

One remarkable characteristics of Mr. Hamada was his excellent capability to find out deli-
cious fruits/vegetables and to make a friend with the regional farmers who produce such
delicious products. Because he loves region and regional community so much that the farmers
were willingly accepting special contracts with him about providing their delicious products.
As a result, Mr. Hamada’s ice-cream products utilizing many delicious fruits/vegetables
became popular and famous even for consumers in urban area.
Mr. Hamada’s another excellent capability was on marketing and promotion. Because of his
long-time experience/effort on sales, his capability on communicating with consumers and
retailers became excellent. He always visited the retail front by himself whether it is domestic
or abroad and communicated with people directly.
Again, in this case, Mr. Makoto Umebara, a charismatic designer, played an important role to
promote the enterprise of Mr. Hamada and his products. Mr. Hamada asked Mr. Umebara to
design the package of Ice-cream items and make a catchy for his enterprise. “Running about
for seeking a delicious food” was the catchy that Mr. Umebara came up with.
In this case, Mr. Hamada played a role of catalysis and bridge between farmers and market.
Usually, regional farmers are not good at communicating with consumers in market because
they are concentrated only in cultivating like a craft person. So that, the information and the
88 Agricultural Value Chain

advice on the market, that Mr. Hamada could give them, were so important and effective for
the farmers. They got the direction of products and became proud of themselves by answering
to the request from Mr. Hamada. Of course, Mr. Hamada’s enterprise is independent from
farmers, but actually the mission of the enterprise is contributing to region and regional
farmers; therefore, the activities of Mr. Hamada enlarged the business of the farmers and
integrated the value chain of agriculture.

4.2. Hamada family and their cake business collaborating with local farms

Hamakou Corporation is a famous cake manufacturer, owning shops in local city, Kochi, and
was founded in 1952. The founder of Hamakou Corporation was a professor of a local univer-
sity. He was very curious about western cakes particularly Baumkuchen, a round-shape cake
developed in German. He personally researched how to make such a cake, and after spending
many years with much effort, he successfully realized the cake by his own cocking manner.
This is an origin of the famous cake manufacturer named Hamakou. Now, they have over 200
employees and annual sales of around 1.7 billion yen (around 17 million US dollar), and their
business is covering processed food manufacturing, managing 16 shops and a hotel including
restaurants and also a fruit farm. The current CEO, Mr. Yukihiro Hamada, is a ground son of
the founder.
As a manufacturer of processed food, they have been developed a variety of items such as
Western cakes, Japanese cakes, jams, beverages, jelly, local beer, and so forth. Their policy was
to think their business as cultural activities. That is, to make a cake was a kind of transferring
the regional culture, they thought. Particularly, Japanese cake was an enjoyment on beauty of
change of seasons, which was one of the remarkable characteristics of Japanese nature, they
mentioned. They emphasized that Japanese people historically have been enjoying Japanese
nature and its beauty by tasting traditional cakes. Also, they respected special agricultural
products in region and insisted to use those products for their cakes to convey what a won-
derful treasure the region has to regional people. They also mentioned that the founders’ son,
the second CEO, has learned many things from French people. Particularly, one thing was that
they respected their regional agricultural products when they make jerry cakes. These thinking
ways and policies were transferred as a family motto through family business of Hamakou.

Based on the motto, they also initiated hotel business over 20 years ago. On the beautiful hill
facing seashore, they have been managing a hotel with a restaurant and a fruit farm by
themselves. The purpose of this business is direct transferring the attraction of regional fruits
and vegetables to customers. They are also involved in producing processed food products as
OEM (Original Equipment Manufacturing) for many other regions’ enterprises. The purpose
of this activity came from their mission as to transfer the charms and attractions of the regional
agricultural products to many people in other regions. Their products are the tools for com-
munication with people and for sharing joy of regional culture/nature, they mentioned.
They themselves design the packages of their products and develop new items because they
mentioned that they are the best persons to know their motto on their items. Developing new
items is one of the most important subjects of their business. They developed a famous item
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Figure 3. Integration of value chain by manufacturer.

named “Kanzashi (meaning “ornamental hairpin”),” which marked a big hit called as one of
the masterpieces representing regional cakes. After the break of this item, they have been
continuing the effort to improve by testing a variety of devices over 200 hundred times for
4 years. They always continue improvement of products by absorbing customers’ voices and
demands.
To realize such a high-quality service, they respect communication among employees. Every-
day, the CEO reads whole members’ daily reports and informs them his thinking at least once
a week. In order to share the affection on cakes not only with customers but also with every
employee, daily communication is very important, the CEO mentioned.
Their products were selected as the second excellent item in all of the regional food products in
nation by Japan Air Line (JAL) and were served for business class seat customers in the
airplane of JAL.
The activities of Kochi Ice and Hamakou are schematically indicated in Figure 3. The CEOs of
these enterprises played a role of binding market and regional farms. Mostly, the businesses of
processed food manufacturer are designed business carefully to match the market and the
preference of consumers because those people are located much closer to market than framers.
So that manufacturer of processed food can be a good guide of market for framers. If regional
manufacturer has a strong hometown feeling and solidarity with regional community, they
could establish tight relationship with regional farmers and could contribute to integrate the
agricultural value chain.

5. Cases of diversification by retailers

5.1. Mr. Kouji Usui and his activities on vegetables business

Mr. Kouji Usui was working for a certain greengrocery when he was young. The name of the
green grocery was Tosa Senri. Tosa was a name of the place of the farmers who supply the
90 Agricultural Value Chain

vegetables to this grocery, and Senri was the name of the place where the grocery was located
and the consumers’ living area. As indicated in the name of the shop, the owner’s policy was
bridging consumers and framers. So that, in this grocery, there were amount of POPs (point of
purchase advertisings), which describe and explain the details of product items, such as where
is the place of production, who is a farmer produced the product, what is a special character-
istics of the product, how to cook it, and so forth. Those POPs were written by Mr. Usui’s hand
directly. To collect the information for POPs, he often visited the farmers’ places and asked
them directly by sometimes staying over in the farmers’ houses. Also, at that opportunity, he
transferred the consumers’ information to the framers, such as what was the reaction of the
consumers, what they said about the products, and so forth. For that purpose, he always
chatted with the customers in the grocery and asked them about their opinion, satisfaction,
impression, and request for the products. That is, Mr. Usui played a role of exchanging/
transferring information and bridging between farmers and consumers. On the surface, the
business of this grocery was selling fruits and vegetables. However, their business had an
aspect of information service. Their manner of transferring information depended not on
information technology like Internet but on human power, somewhat old-fashioned style
method. However, it was so good to transfer the detailed information from human to human,
rather than the transferring by Internet or some other IT methods. By using human network
transferring, their information was very deep, detailed, and sensitive.
At that time, the annual sales of the grocery were so good and reached up to over 1 billion yen
(around 1 million US dollar) by only two employees, Ms. Mariko Tomita, leader, and Mr. Usui,
sales staff. Such high sales were very unusual in comparison with most of the groceries dealing
with regional products. Generally, it was very difficult for ordinary groceries to gain such high
sales. One reason of their success was that they insisted to provide only excellent products that
they themselves could be satisfied with the quality. Another was that they transfer the infor-
mation on demand and supply between customers and farmers to create a new product fitting
to consumers’ preference. By the effort of Mr. Usui, farmers and consumers both got benefits
on production and consumption. In this case, the retailer played a role of binding both sides.
After working for Tosa Senri, Mr. Usui initiated his own business focusing making POPs for
many shops because he recognized that his capability on information transfer would be useful
for many retailers.

5.2. Mr. Masaharu Tamamori and Iriomote pineapple

Mr. Masaharu Tamamori was a vice president of the tourism enterprise named Yaeyama Tour-
ism Cooperation. The main business of the enterprise was operating a ferryboat among many
islands called Yaeyama islands. But they also managed many other businesses such as operating
shuttle bus, taxi, hotels, super market, and so forth in region. Because everyone should collabo-
rate with each other in an island, a small community, the enterprise also should be involved in
many kinds of businesses regarding the daily lives of islanders, including cultural events such as
summer festival, collaborative activities of cleaning public spaces, and so forth.
In the past, the main industries of Iriomote island were growing sugarcane and pineapple. The
farmers sold pineapples to the processed food factory at the price of only 25 yen in the past,
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Figure 4. Integration of value chain by retailer.

they mentioned. However, by globalization, the lower price pineapple made in Taiwan and
Vietnam surpassed their products in the market, and the factory of Japanese pineapple was
closed. The farmers on pineapple lost their job as a result.
Mr. Tamamori, a younger member of the board of trade of the island at that time, watched the
distress of the farmers and made up mind to support them by selling their pineapple. He ran
about all over nation to promote the pineapples of Iriomote. He went to many railway stations
and sang a traditional song of Iriomote with ethnic instrument to appeal that Iriomote was a
peaceful island with beautiful nature. After over 10 years’ effort of promotion, Iriomote
pineapple got popularity among Japanese people and many sight-seeing tourists tended to
purchase it with a higher price of several hundred yen, over 10 times that for the factory in the
past.

Nowadays, the proliferation of Internet and delivery system accelerated the business of
Iriomote pineapple, so that Iriomote pineapple became one of the famous souvenirs of
Yaeyama islands.
In this case, the relationship between farmers and the key persons was very tight. In the small
community like an island, every one should collaborate with each other for survival. The
binding among islanders was so strong that everyone has a strong passion for contributing to
island based on their solidarity. In that case, if the key person has a capability of business
management, he/she can contribute to build an effective integration of agriculture value chain.

The two cases described here have the same characteristics, tight binding between farmers and
retailers and also close communication between farmers and consumers through the medium
of retailers. The realized integration of food industry is schematically indicated in Figure 4.

6. Cases of diversification by a farmer with business experience

Many cases described before in this chapter were the cases that the key persons were not
farmers. Usually, farmers are focusing only growing vegetables or fruits as a craft-person/
92 Agricultural Value Chain

specialist; therefore, they are not good at business/sales. Mostly, they are lack of knowledge
and know-how on business or sales. The case introduced here is a curious case that a key
person as a farmer, but with business experience though his past working experience, plays a
role for activating farm. The farm was re-organized as a corporation by him. The key person
induced many modernizing devices to this farm and advanced their business as follows.

6.1. Mr. Yuji Nakamura and his global business on lily bulb

Mr. Yuji Nakamura was originally working for a certain life insurance enterprise before
entering to his fathers’ farm named Nakamura Farm. Nakamura Farm was founded in 1955
by his father, who was originally a high school teacher majoring biology. His father was much
keen on flowers, particularly on lily. He launched his business of producing lily bulb after long
time researching growing technology of lily bulb.
In 1990, Mr. Yuji Nakamura succeeded his fathers’ business and established an enterprise
organizing Nakamura Farm because of bad health condition of his father. He initiated global
business on lily bulb by utilizing his capability and knowledge on modernized business.
One excellent idea was that they initiated lily bulb business in winter by carrying bulbs by
refrigerating container from other countries in the Southern Hemi sphere such as Chili, New
Zealand, and so forth. Usually lily cannot be grown in cold circumstance like winter, so that
there was no supply of lily bulb in winter. But they grew lily bulbs in hot circumstance in the
Southern Hemi sphere and brought them to Japan by using refrigerating container and
defrosted them by their original technology. By this device, they could occupy winter market
of lily bulb in Japan.
They positively learned many things from Netherlands with advanced technology on flowers
and imported lily bulbs and some other flowers’ bulbs from abroad. They also built green-
houses controlled by computer to research the best growing conditions for lily flowers. They
sold lily bulbs with precious information/data on how to grow lily flowers, obtained through
their research in greenhouses. It was a good service for customer farmers who would grow
lily flowers by purchasing lily bulbs from them in order to sell the grown flowers to flower
market.

Currently, their annual sales reached over 1.7 billion yen (around 17 million US dollar) by only
16 employees. Nakamura Farm is so popular for job-hunting students that over one hundred
students applied for only one opportunity of recruit.

Nakamura Farm is also highly respecting relationship with regional community because their
business and daily lives are strongly bound with regional community. They held a follower
festival once a year to express appreciation for regional community. They have also many
social activities collaborating with regional schools.

In this case, the key person in the side of farming had strong passion to contribute to regional
community, and he had also capability of modernized business management. This is some-
what a rare case in current status in Japan, but the number of the persons like Mr. Nakamura is
getting increased gradually. The effort of agricultural diversification will be much more fruitful
in the future.
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7. Analysis on KFS and discussion

To analyze Key Factor of Success (KFS) of the cases presented in this chapter, the common
elements in the cases particularly focused on character/personality of key persons are summa-
rized as follows.
1. In every case, the key person had a strong entrepreneurship and capability of business
management. Usually the farmers are not good at business itself because of their specialty
and mentality. In that sense, the key persons who are good at business management can
contribute to actual integration of value chain or re-allocation of farmers’ assets/resources
in new business style.
2. In every case, the excellent strategies of advertisement, marketing promotion, and brand-
ing are common elements for inducing their business success. Because most of the poor
regions are lack of resources, branding is an effective manner to lift up their business.
3. In the most of the cases, the market size of their products was not so large that large
competitive enterprises will not penetrate the market to enlarge their business. If the
market is so large, cost-reduction, and price-down by scale-merit of large enterprises with
large capitalization will be a threat in business.
4. In every case, the key person had a strong feeling of contributing to the regional commu-
nity. Particularly, the case of Kochi Ice indicates that the kindness of local people made an
important role for forming the personality and the business policy of the key person. Social
capital as solidarity, trust, credibility, and hometown feeling in region is said to be essential
to grow entrepreneurs with strong mission for contributing regional community [6–11].
Because agriculture industry is commonly strongly linked to regional community, improv-
ing social capital in region is significant to advance agriculture by diversification.
The common factors mentioned in 1–3 are understandable by the following tendency. That is,
generally, there are two directions of construction of industry as follows.
a. Dividing value chain and horizontal collaboration for enlarging scale of industry for cost
reduction
b. Binding value chain and vertical integration for enhancing brand value in niche market

Emancipation of farmland and forming agricultural cooperatives by the policies right after the
Second World War were executed for the purpose of activating degraded food industries in
Japan, so that the policies were thought to be based on the above-mentioned direction a.

In contrast, the policy of agricultural diversification is proposed for the purpose of increasing
profit of farmers by branding in niche market, so that the policy is rather thought to be based
on the above-mentioned direction b. The common elements mentioned in 1–3 could be under-
stood in this aspect.

One of the implications induced from the case analysis is that successful key persons for
agricultural diversification have strong entrepreneurship, capability of business management,
passion and mission for contributing to regional community, and tight relationship with
regional community. Although MAFF promoted the policy of diversification, the reforming
94 Agricultural Value Chain

Figure 5. Circulation of intangible asset in region.

social system to support the policy is not enough for realizing the policy. The activities of those
kinds of key persons are essential in the real reforming of industries. The significance of human
resource should be re-considered for the future of agriculture.
The common elements mentioned in 4 are thought to be indicating a kind of circulation of
social capital in region as intangible asset. As schematically shown in Figure 5, social capital in
region grows entrepreneurs with passion/mission for contributing regional community, and
such entrepreneurs play a role for business success by integrating value chain, and the success
of the agricultural diversification produce profits returning to the farmers in region.
In this section, many successful cases were introduced; however, of course, there were many
failures in the real industry. It is often observed that, even if there is an aggressive entrepreneur
for food industry in any position, he/she could not be successful in establishing effective
integration of value chain without collaboration with farmers. In any success cases, the tight
linkage between farmers and entrepreneur was essential for establishing business model. In
that sense, social capital in the relationship between regional community and entrepreneur is
though be a kind of potential asset to advance industry/society. It will be increased through the
circulation of asset, indicated in Figure 5, in the industry; therefore, it is inferred that we could
grow asset/equity in society.
Another implication obtained here is that this kind of circulation of intangible asset would be
significant in term of realizing sustainable development of regions. The businesses described in
this chapter will not be adoptable for all kinds of agriculture fields. The agricultural diversifica-
tion strategy would be effective only in some niche markets. However, the circulation of intangi-
ble asset in these businesses may be a clue to realize sustainable development of powerless
regions without amount of resources and tangible asset.
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8. Conclusion

To overcome the issues of low profitability and mismatching to market demand, integration of
agriculture value chain, called as agricultural diversification, has been progressed in Japan.
The policy of agricultural diversification was proposed by the Ministry of Agriculture, Forestry
and Fishery (MAFF) in Japan, but the execution of the policy needs effort and collaboration of
many other people except farmers, because the conventional farmers are sometimes lack of
capability of organizing other value chain stages.

Some aggressive key persons as brokers, processed food manufacturers, and retailers are very
helpful for establishing profitable agriculture when they collaborate with regional farmers.
This chapter presented totally seven cases of successful restructuring agricultural value chain.
In every case, the key person with strong entrepreneurship, business capability, and passion/
mission for contributing regional community played an important role to establish successful
business by realizing agricultural diversification.
One of the implications induced from the case analysis is that the activities of those kinds of
key persons are essential in the real reforming of industries. The significance of human
resource should be reconsidered for the future of agriculture.
Another implication is that social capital of region is important to grow key persons with
entrepreneurship, collaborative with farmers and to return profits to farmers and regional
community. In that sense, realizing a kind of circulation of intangible asset such as social
capital of region is a clue for sustainable development of powerless region.
The policy of agricultural diversification might not be effective for all kinds of fields of
agriculture industry. The policy would be effective for increasing profit of farmers in some
niche market but not in major market fields with scale of merit. However, the policy would
play a complementary role for encouraging Japanese contemporary agriculture.

Acknowledgements

The author would like to express sincere appreciation to the key persons of each business
described in this chapter. This work strongly owes their kind cooperation.

Author details

Makoto Hirano
Address all correspondence to: hirano-makoto@fukuchiyama.ac.jp
The University of Fukuchiyama, Kyoto, Japan
96 Agricultural Value Chain

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[11] Westlund H, Larsson JP, Olsson AR. Start-ups and local entrepreneurial social capital in
the municipalities of Sweden. Regional Studies. 2014;48(6):974-994
 Chapter 6

Dairy Value Chain In Vietnam: Evidences from Bavi

Area

Nguyen Viet Khoi, Hoang Thi Hai Yen, Tong

Nguyen Viet Khoi, Hoang Thi Hai Yen,
Van Khai, Nguyen Tien Duc and Dang Thi
Tong Van Khai, Nguyen Tien Duc and
Phuong Hoa
Dang Thi Phuong Hoa
Additional information is available at the end of the chapter
Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.69450

Abstract

Dairy farming, in Vietnam, existed in the early twentieth century thanks to the favor-
able natural advantage. During many diicult periods, the Vietnam’s dairy industry has
developed constantly and contributed signiicantly to the food needs ensuring. However,
Vietnam’s dairy industry still could not satisfy the domestic milk demand. Retail milk
prices in Vietnam are very high, whereas the price of milk sold by the dairy farmers is
very low. The cause stems from the control of dairy companies in the quantity and qual-
ity of milk. Moreover, that control caused an imbalance in the proits and beneits of each
actor in the dairy value chain. This study, hence, inds out the distribution of beneits,
costs, value-added among the actors, and problems in the practical management in dairy
milk value chain with speciic focus on Bavi as the case study.

Keywords: dairy value chain, Vietnam dairy products, Vietnam value chain, upgrading
value chain, Bavi Vietnam dairy

1. Introduction

For each diferent research, the value chain will be interpreted in many diferent ways.
According to Khoi [1, 2], Chain emphasizes vertical order of the activities leading to the dis-
tribution, consumption, and maintenance of goods and services. The chain contains dynamic
characters in the sense that repeated in an order.
The value chain concept was introduced in by Porter [3] in Competitive Advantage
Creating and Sustaining Superior Performance. In his research, the deinition of the value chain
is understood as the idea of the value chain is based on the process view of organizations, the

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100 Agricultural Value Chain

idea of seeing a manufacturing or service organization as a system, made up of subsystems

each with inputs, transformation processes and outputs. Inputs, transformation processes and
outputs involve the acquisition and consumption of resources money, labor, materials, equip-
ment, buildings, land, administration and management. How value chain activities are carried
out determines costs and afects proits. According to Porter, a basic value chain consists of nine
stages and is divided into the main activities in the chain and the complementary activities. The
irst major activity in the inputs supply is the operation reception and storage of raw materials
for an industry or a certain ield. Next, the production activity directly relates to the process of
creating the greatest value-added of products such as processing of raw materials into the inal
product. Logistics activity will be responsible for receiving the inal products, storing them in
warehouse, and distributing them to dealers, stores. Marketing activity and promotional media
promote the product to consumers. Finally, service or after-sales activity relates to the customer
care in order to maintain customers or enhance the value of the product. The complementary
activities, while not directly, create the value-added of products, but they are important activi-
ties to support main activities to create value for products and for every link in the chain.
Approaching the theory about the value chain in the dairy milk sector, the value chain of dairy
milk could be understood as a combination of several activities from the producers to the inal
consumers. The combination contains the farmer (growing dairy cows and collecting milk), the
processors and the seller. These actors directly participate in the value chain their relationships
depend on the low of good, the low of information and the cash low. Besides, activities of this
value chain were inluenced by many factors such as supply chain system, marketing, legal sys-
tem, and supply and demand of goods. Therefore, a typical value chain of dairy milk contains
production, transport, chilling and bulking, processing, transport or distribution and retail.
As an agriculture country, dairy farming in Vietnam existed in the early twentieth century due
to many favorable natural advantages. Since then, Vietnam’s dairy industry has developed
constantly and contributed signiicantly to the food needs ensuring. The demand for milk in
Vietnam increased gradually in general, and the demand for raw milk increased by 61% in
particular. Fresh milk production has increased by . % compared with from . to
. thousand tons. However, Vietnam’s dairy industry still could not satisfy the domestic
milk demand. And the milk retail prices in Vietnam are very high, whereas the prices of fresh
milk provided by the dairy farmers are very low. This paradox stems from the overwhelming
control of dairy companies in both the quantity and quality of the milk input. That mechanism
caused an imbalance in the proits and beneits among every actor in the dairy value chain.
Hence, this chapter will ind out the distribution of beneits, costs and value-added among the
actors, and point out the problems in management system of this dairy value chain in Vietnam.

2. Dairy value chain in Vietnam: evidences from the case of Bavi

2.1. Literature review

The literature is abundant with the works that address the value chain of dairy milk. These
researches pointed out the important results in developing the value chain of dairy milk in
 Dairy Value Chain In Vietnam: Evidences from Bavi Area 101
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general and each actor in chain. Thanks to Porter [3] and Kaplinsky and Morris [4], the con-
cept of value chain and the method to calculate value-added and proit of actors in the
dairy value chain are created. Lowe and Girafe showed a good view of the dairy value
chain in the USA an advanced country in milk production. The value chain includes four
main actors inputs, production, process and distribution, and marketing. In the USA, high
technology is applied in most parts. There are concentrated steps in nurturing, harvesting,
collecting and processing milk. Every step is carefully controlled and managed. The special
thing in the US dairy industry lies in the veterinary system. The result of the study is that
the companies downstream from the dairy producer category, milk and dairy processors,
include large, diversiied companies despite being diversiied well beyond milk and dairy
products, nonetheless include companies that have higher shares of the dairy market than
the largest producer cooperative. In the dairy value chain in Kenya August , a report by
Techno Serve Kenya, East Africa Dairy Development mentioned each of the actor’s situation
in the dairy value chain in that country. In addition, the study also referred to the logistics
operations in parallel in the series. By means of descriptive statistics, the study showed the
limitations and the dominant presence of the value chain. Research also ofered solutions and
proposals to overcome the diiculties. Achchuthan and Kajananthan found out the
main factors that have inluence on the dairy sector of Sri Lanka. This study also discovered
the strengths and weaknesses of each actor in the dairy value chain discovered the strong,
weakness, opportunities and even threats of each actor to suggest actors in the dairy value
chain to strengthening the dairy sector. About the strengths, the author pointed out that the
farmers are being provided the inancial assistance by some local companies to widen their
farms and increase the scale of dairy milk production. The farmers are also trained about how
to use modern equipment to test the quality of milk and educated about marketing strategy
to develop their milk brand. Also, in Sri Lanka’s agriculture sector, there is always abundant
labors with low labor cost to expand their business. On the other side, the dairy farmers also
have many diiculties in their business such as they do not have the educational background
to plan the dairy farming in the large scale further cooperative society in the Karachi division
has not enough technological facilities to preserve the pure milk. And they also do not have
the value-added strategies like milk tofee, ice cream, yoghurt in the large scale, etc.

Besides, in Vietnam, Tran Huy Cuong and Bui Thi Nga analyzed the actors in the value
chain of the fresh milk in Vietnam. This research used not only quantitative but also quali-
tative approaches in the case of fresh milk products in the northern area of Vietnam. The
research illustrated the four main actors in the dairy milk value chain in Vietnam the
farmer collector processing irms and distribution. The dairy plants play an impor-
tant role and have right to make decisions. In other word, the dairy plants processing irms
become the main actor, which receives most of the proit. The farmers who invest lots of
capital and time to raise cow only receive a small proportion of the proit. This research
gives a deeper vision on what is going on in the fresh milk production and distribution in
Vietnam. This is one of the very few researches in Vietnam on the value chain of the dairy
industry. Agreeing with the approach of some study, the study by Khoi [ ] has provided
quite detailed analysis on comprehensive value chain of Vietnam dairy industry to produce
the value-added level in the value chain actors of Vietnam’s dairy. This is a reference to help
102 Agricultural Value Chain

paper to get diferent perspectives on the development of value chains in diferent sectors in
Vietnam. In another study of Vietnam by Khoi [6], the author gave the merger may occur in
the dairy sector in Vietnam due to diferences in value-added in the value chain of this sector.

2.2. Methodology

A survey was carried out in Bavi, Hanoi, where a large amount of fresh milk is produced
annually. The content of the survey was built before conducting in Bavi with questions.
The questionnaires were based on the criteria which relect the main objectives of the paper
such as the actor’s proits and costs, the relationship among these actors, and the advantages
and disadvantages in the dairy milk’s value chain. Some part of results of the paper should be
evaluated by interview of the relevant target groups in the value chain of dairy milk.
Data collected were aggregated and analyzed by SPSS , Excel. The calculation of cost and
proit margin of each actor in the chain will also be presented by a quantitative tool for value
chain analysis.

2.3. Overview of the dairy sector in Vietnam

In the last year, Vietnam has witnessed the gradual growth of the milk consumption.
Vietnam is not the country with long history of milk production however, in the last few
years, Vietnamese people have realized the importance of milk products and spend more on
this nutria drink. The growth rate is quite high on average nevertheless, Vietnam is still in the
low milk consumption area < kg/capita/year . This might be a big chance for milk producer
in the near future.

Most milk products in Vietnam are designed for under -year-old babies and the elder. There
is a huge market for daily milk consumption and mature specialized milk. According to Khoi
[1, 2] % of Vietnamese population in the two big cities, namely Ho Chi Minh City and
Hanoi, has been consuming % of dairy products. These data show an inequality in the
consumption of milk products.

2.3.1. Dairy milk consumption

Gerosa and Skoet investigated countries about the consumption of goods. They
released an elasticity to show the range of demand. The income elasticity of expenditure
estimates the percentage increase in expenditure on the food category resulting from a %
increase in income. According to Table 1, we have the elasticity of the dairy milk product.

The income elasticity of expenditure estimates the percentage increase in expenditure on

the food category resulting from a % increase in income. The numbers reported are sim-
ple unweighted averages of estimates for the individual countries included in each income
group. Vietnam a lower middle-income countries have the relatively high dairy elasticity
. , which might be a reason for the fast growth of the milk industry in Vietnam.

The practical situation in dairy milk industry in Vietnam was unacceptable with Gerosa and
Skoet’s research . Along with the increase in the living standard, the amount of annual
 Dairy Value Chain In Vietnam: Evidences from Bavi Area 103
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Low-income Lower middle- Middle-income High-income

countries income countries countries countries
N = 28 N = 36 N = 36 N = 44
Food beverages and . . . .
tobacco

Beverages and tobacco . 1.13 . .

Cereals . . . .

Meat . . . .

Dairy . . . .

Fish . . . .

Fats, oils . . . .

Fruits . . . .

Other foods . 1.23 . .

Table 1. The elasticity of consuming products.

consumption of fresh milk in Vietnam increased over the years, especially in the period from
to . In the years since , the number of annual milk consumption in Vietnam
increased only . kg. However, in the period , the annual milk consumption
is . kg, which is more than double amount of . In the period from to , the
amount of milk consumed per capita per year increased only slightly due to the afecting of
the melamine crisis in . After recovering, from to , Vietnam has witnessed the
signiicant increase from . to . kg/capita/year Figure 1).

2.3.2. The dairy milk production

The number of dairy cow and quantity of milk production in Vietnam is increased rapidly
from to . From to , the number of dairy cow increases steadily from
thousand to nearly thousand heads. The reason for that is the increase in the demand of
milk and the implementation of resolution and decision , which created condition and
opportunity for Vietnam’s development by stimulating Vietnamese farmers to raise cows the
resolution contributed to increase the dairy herd to , milking cows and production of
, tons fresh milk yearly . The decision built a production and development strategy
for dairy catle for the period . This strategy aimed to raise dairy cow in Vietnam
including provinces in the North, provinces in the Central Coastal region, provinces in
the Central Highlands and provinces in the South. In and , the growth rate of the
dairy cow number was only . % per year which resulted from the ineicient milk produc-
tion due to the low technology. However, with the restructure of dairy program, accompany
with the increasing quickly in milk demand. The number of dairy cow recovered in raised
. % per year from to . From to , the number of dairy cows increased
gradually with the average of . %. In , Vietnam has , dairy cows. As a result,
total dairy milk production in Vietnam in was , tons it was six times higher than
104 Agricultural Value Chain

Figure 1. Total fresh milk consumption in Vietnam from to . Source General statistic oice of Vietnam.

the dairy milk production in . From to now, the quantity of milk production has
continuously increased. In , Vietnam has witnessed an increase in fresh milk production
by . % compared with . The quantity of fresh milk in Vietnam in was . thou-
sand tons (Figure 2).

2.3.3. The imported quantity of milk

Due to the melamine milk crisis in the Asia region in and , the number of imported
milk of Vietnam had decreased suddenly in early . From then to now, the quantity of
milk that Vietnam imported has recovered gradually. Currently, in the end of February ,
Vietnam’s import reached to items, million of dairy products and increased . % with
last year. Vietnam imported raw milk and other milk products from countries around the
world, mainly from New Zealand, accounting for . % of total turnover, reaching . million,

Figure 2. Quantity of dairy cow and milk production in Vietnam from to . Source General Statistics Oice of
Vietnam.
 Dairy Value Chain In Vietnam: Evidences from Bavi Area 105
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and raised . %. The second largest supplier is Singapore reaching . million, and increased
. % followed by Australia, reached . million data
Generally, in the irst months of , the amount of imported milk from other markets had
positive growth rates such as Denmark, France, the USA, Korea, Philippine, etc.

2.4. The dairy value chain in Vietnam

The value chain of dairy milk in Vietnam includes a lot of activities such as input supply
farming, production bulk and cooling processing packaging transportation and distri-
bution, which divided in ive stages. There are many actors in the chain A, feed, heifers
machines B, dairy men dairy farmers C, milk collectors D, dairy plant E, wholesaler, shop
agents, showroom-market F, Retailers G, middle men small shop, milk care shop and H,
Consumers domestic consumers and international companies . Besides, the value chain of
dairy milk was supported by other organization through projects and policies Figure 3).

Figure 3. The value chain of dairy milk in Vietnam the function and actors.
106 Agricultural Value Chain

2.4.1. First stage: input supply

Dairy cows and industrial food for agriculture sector derive from domestic market and
importing from the foreign. However, the importing dairy cows and food accounted for a
relatively large amount. The dependence on this importing source may efect on the stability
of Vietnam dairy milk. Therefore, in stage of input materials, one of the most essential tasks
of Vietnam dairy milk is being prior to choose the best dairy cows.

2.4.2. Second stage: production and farming

This stage plays the most important role in the whole value chain of Vietnam dairy milk and it
also the stage, which Vietnam still, have the huge gap with other countries. There are several
reasons why Vietnam is not good at this stage. Firstly, it comes from the lack of animal food,
infrastructure, technology and the support from Vietnam government. Secondly, the famers
in the Vietnam’s dairy value chain also lack the necessary knowledge and skills of livestock
sector dairy farming . As a result, the dairy breeding sector only meets % of domestic
demand.

2.4.3. Third stage: processing

This stage is the combination of milk collecting, processing and packing. Presently, there are
three major participants taking part in milk collecting milk procurement companies, coopera-
tives and privates. Although the milk collecting companies have increased the level of milk
procurement through their collecting points, however, with the participation of private in col-
lecting dairy milk makes the price of milk is not stable. Additionally, there is still above %
of the milk that does not meet the quality standards.

2.4.4. Fourth stage: distribution

Recently, in Vietnam, the dairy milk is distributed in two main trends traditional channel
distributors account for over % proit wholesale agents stores consumers and mod-
ern channel supermarket consumers

2.4.5. Fifth stage: consumption

The large of milk consumption in Vietnam shows a positive picture when the milk is one of
the most important goods and it accounts for the largest market. In recently, the level of milk
consumption in Vietnam market increased signiicantly. Only % of the country’s popula-
tion consumes % of dairy products. This promotes Vietnam dairy branches to develop more
and more to meet diferent consumer needs.
In the case of Bavi, the dairy farmers buy animal feeds, cows and machines from suppliers
and generate milk by their own. Dairy farmer mainly sold their raw milk to collecting centers
by % they keep the rest at home as food resource or provide for retailers and shops by
and %, respectively. There are many retailers and milk shops situated near highway from
 Dairy Value Chain In Vietnam: Evidences from Bavi Area 107
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Hanoi to Phu Tho and Vinh Phuc, where it is convenient for anyone to buy milk. The reason
why there are still a considered amount of milk that was provided to retailers Figure 4).

From dairy plant, most of milk products . % were distributed to the wholesaler, shop
agents, showrooms, only . % of those products to schools and companies and . % of them
to the retailers. From wholesaler, shop agents and showroom-market, these products were
distributed to retailer % before being sold to consumers and % of those products are
shared out directly to the consumers.

2.5. The cost, proit and value-added

2.5.1. Economic analysis of dairy farmers

The survey was carried out in Bavi district with the aim to examine the production cost of
dairy farmers in Bavi. With the including of family worker in the cost production, the total

Figure 4. The distribution in the value chain of dairy milk in Bavi. Source Calculated by data collected, .
108 Agricultural Value Chain

Items Detail Unit A-Quantity A-Price A-Costs A-Share

A Cost

Food Produce grass, VND/cow/ 6 cows , , .

others) month

Purchase Kg 6 cows , , , , .

Vaccine VND/cow/ 6 cows , , .

month

Electricity VND/cow/ 6 cows , , .

month

Water VND/cow/ 6 cows , , .

month

Labor Family worker Man month 2 , , , , .

Hired worker Man month 4 , , .

cuting grass

Transportation VND/month , .

IC Income VND/month , ,

Total cost VND , ,

Total unit cost VND/KG 9793.87

B Sale price VND/kg 1 11,100

Revenue VND/month 6 cows , , , ,

C Proit VND/cow/ 6 cows , , ,

month

Unit proit VND/kg 1 1206.125

D Value-added VND/kg 4510.97

Source Calculated by data collected, .

Table 2. Cost, proit and value-added of dairy farmers including family workers .

average cost per kg of milk is almost . Vietnam dong VND . This cost contains the
cost of food, vaccine, electricity, water, labor and transportation as shown in Table 2. Farmers
plant nappies grass, corn in their ield and harvest for cows to diminish the cost of food.
Despite of that saving, they still have to pay , , VND per cow for industrial food, which
accounts for . % of total cost. However, the average price of kg fresh milk is only ,
VND. It is clear that the proit of farmers is only VND/ kg milk while they generate
almost VND value-added.

But in fact, when calculating the cost production of farmers, the labor cost of family mem-
bers were not calculated. Thus, the intermediate cost was maintained, whereas the total cost
decreased to . /kg milk. So that, with the price of , VND/kg milk, they believe that
they could earn the proit at VND/kg of milk.
 Dairy Value Chain In Vietnam: Evidences from Bavi Area 109
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2.5.2. Economic analysis of dairy plants

Firstly, this chapter will not calculate the cost, proit and value-added of the collectors in Bavi.
The reason is that the dairy milk chain in Bavi is diferent from other value chain. In this value
chain, the collectors belong to dairy plant they are not households or traders so the economic
analysis is added into the dairy plant’s economic analysis Table 3).
In general, kg of fresh milk is , VND. Dairy companies usually have high intermediate
cost, which accounts for . % of milk price with , VND. Intermediate cost contains
input material, which is imported from other countries, the input milk from dairy farmers,
electricity to operate dairy plant, water and other materials. The average total cost of dairy
plant is , VND . % . Thus, dairy companies gain the average proit of VND,
which account for over % of total revenue. Besides, they generate the amount of value-
added at VND.

2.5.3. Economic analysis of wholesalers

Wholesalers at level , who buy milk product directly for dairy companies they are hired to
sell product for companies. The advantage is that they do not need to buy facilities and the
input products were not calculated in the intermediate cost. So that, all the input cost they
have to pay is electricity and renting. The other cost is labor cost the average wage of a worker
or seller in the shop is , , VND. In the end of month, the companies will assess the rev-
enue of wholesaler and pay the commission for them. The commission is based on the level
of revenue revenue million VND, get % commission revenue million VND, get %
commission and revenue over million VND, get % commission . This method encour-
ages the wholesalers trying to sell more and more.

On the other hand, the wholesalers at levels and smaller scale buy milk products of dairy
companies in the low price and sell it to retailers and consumers with higher price to get
proits. In this way, wholesalers have more independence in their businesses. They also were
equipped facilities by companies this is advertising and the taking market share of compa-
nies) (Tables 4 and 5).

Items Unit Costs Share (%)

GO/TR Revenue VND/kg ,

TC (Total cost) VND/kg , .

IC Income VND/kg , .

VA (Value-added) VND/kg .

NPr Net proit VND/kg , .

Source Calculated by data collected, .

Table 3. Cost, proit and value-added in kg milk of dairy companies.

110 Agricultural Value Chain

Wholesaler 1

Items Unit A-Quantity A-Price A-Cost

Cost

Electricity VND/month , ,

Rent VND/month , ,

Labor Man month 2 , , , ,

IC (Income) VND/month 4,100,000

TC (Total cost) VND/month 9,100,000

GO/TR (Total VND/month 55,000,000

revenue)

Get VND/month 16,500,000

NPr Net proit VND/month 6900,000

VA (Value-added) VND/kg 2800

Source Calculated by data collected, .

Table 4. Cost, proit and value-added of wholesaler at level .

Wholesalers 2 and 3

Items Unit A-Quantity A-Price A-Cost

Cost

Input kg/month , , ,

Electricity VND/month , ,

Rent and VND/month , ,

transportation

Labor Man month 1 , ,

IC (Income) VND/month 28,000,000

TC (Total cost) VND/month 28,400,000

GO/TR (Total VND/month 1000 32,200 32,200,000

revenue)

NPr Net proit VND/month 900 4222.2 3,800,000

VA (Value-added) VND/kg 3755.6

Source Calculated by data collected, .

Table 5. Cost, proit and value-added of dairy farmers of wholesaler at level .

Finally, wholesalers could get an average proit at , , VND and generate the value-
added per milk product at VND. With wholesalers at levels and , the average total
revenue is , , VND per month and get about VND/kg milk. They create the aver-
age value-added at . VND, which is higher than that in wholesaler level .
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2.5.4. Economic analysis of retailers

The retailers in the value chain of dairy milk in Bavi have the same business method with
wholesalers at levels 2 and 3, but they have much smaller scale than wholesalers. Most
retailers buy milk products at wholesaler and distribute to consumers. The average labor
hired is smaller than one because they usually use their own labor force. The input price
of retailers is , VND/kg milk and sale price is , VND. The average quantity milk
sold per month is kg. They could earn VND/kg milk and generate VND
value-added (Table 6).

2.5.5. The beneit and value-added comparison among actors

Base on the method that Kaplinsky and Morris [4] has launched, the costs and proits are
divided among the actors could be determined and thereby determine who may beneit from
the chain.
In Table 7, it takes the cost A for the dairy farmers when they produce one unit of milk prod-
uct they sell milk product with price G. Follow the alongside of chain, H, I, J, K are price of
one unit milk product of each actors. B, C, D, E are added cost when milk products transfer
to the next steps including collectors, dairy plants, wholesalers and retailers. Hence, the total
costs to produce one unit of milk product of each actor are G + B, H + C and J + E. F = A +
B + C + D + E is the total cost to produce one unit of milk product from the beginning stage
farmers to the inal stage of the value chain consumers . So, the total proit that the chain
get from producing one unit of milk product is F-K. From that, percentage of added cost,
percentage of added-proit and percentage of retailer price of each actor in the dairy value
chain will be calculated clearly. Based on Table 7 and the data about unit total cost and price
of each actor mentioned above, the relative inancial position of actors in value chain was
showed in Table 8.

Items Unit A-Quantity A-Price A-Cost

Cost

Input kg/month , ,

Electricity VND/month ,

Labor Man month , ,

IC (Income) VND/month 6,640,000

TC (Total cost) VND/month 6,790,000

GO/TR (Total VND/month 200 35,000 7,000,000

revenue)

NPr Net proit VND/month 200 1050 210,000

VA (Value-added) VND/kg 1800

Source Calculated by data collected, .

Table 6. Cost, proit and value-added of dairy farmers of retailers.

112 Agricultural Value Chain

Chain actors Costs Revenue Proit Margin

Unit total Added % Added Unit price Unit proit % Total Unit % Retail
cost unit cost cost proit margin price
Farmer A A/F G G−A G−A / G G/K
K−F
Collectors G+B B B/F H H−B−G H−B−G / H−G H−G /K
K−F

Dairy plant H+C C C/F I I−C−H I−C−H / I−H I−H /K

(K-F)
Wholesaler I+D D D/F J J−D−I J−D−I / J−I J−I /K
(K-F)

Retailer J+E E E/F K K−E−J K−E−J / K−J K−J /K

K−F

Total F=A+B K−F K

+C+D
+E

Source Kaplinsky and Morris [4].

Table 7. Relative inancial position of actors in value chain.

Chain actor Costs Revenue Proit Margin

Unit total Added unit % Added Unit price Unit proit % Total Unit margin %
cost cost cost proit Retail
price
Farmers . . , . . , 31.43
Dairy plant , . , . , .

Wholesalers , . , . 23.43
Retailers , . , .

Total , . . 11,633.1 ,

Source Calculated by data collected, .

Table 8. Cost and margin for actors in Bavi in .

As presented on the data, it is evident that farmers incur high cost . % of the total and
has very litle proit only account for . % , whereas the wholesalers have litle costs and
relatively high proit with . %. For the case of dairy plants dairy companies , they added
. % of total cost the second highest cost, however, it should be noted that, they get a
remarkable proit with . %. Overall, the inancial position of actors indicated that the costs
and margins are shared unequally in the chain. Speciically, for every , VND that a con-
sumer pays for a kg of milk product, , VND goes to farmers, , VND goes to dairy
plant, VND goes to wholesaler and VND belong to retailers.

In the term of proit, the proit seems to be distributed unequally among actors along the
chain of dairy milk. Farmers who invest most in their facilities, technology and food received
 Dairy Value Chain In Vietnam: Evidences from Bavi Area 113
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only about % proit of the value chain. The proit receiving is inclined to the dairy compa-
nies, which get the highest proit with VND per one unit of milk product. Going to the
end of the dairy milk chain, the proit decreases gradually with . % for wholesalers and
about % for retailers Figure 5).

2.6. The dairy chain management

Management activities of the dairy value chain in Bavi have many advantages such as
• The value chain is concerned and encouraged as much as possible. Typically, farmers are
supported in all aspects by the establishment of Bavi Catle and Forage Research Center
BCFRC . To stimulate farmer in the increasing the number of dairy cows of the district,
the BCAFRC collaborated with IDP companies International Dairy Joint Stock Company
established since to provide loans for farmers with % interest rate. With these loans,
they could buy breeds and build cow house.
Up to % of farmers buy cows from the center and % of farmers buy cows from other house-
hold small cow . Hundred percent of them implemented fully vaccinated policy and % of
cow health managed by authorities.
• Control of the company’s commitment The implementation of milk consumption of dairy
companies registered trademark. Bavi milk is always under the control, which ensures the
fairness in trade by farmers.
• Milk quality management At collecting stations of mainstream companies, there are al-
ways strict testing processes to ensure the hygiene and quality of milk.
• Facilitating for wholesale and retail shops along the road and around the Bavi national
eco-park.

Figure 5. The comparison among actors in added cost, total proit and retail price- . Source Calculated by data collected,
.
114 Agricultural Value Chain

Besides, there are the inevitable weak points at which express the lack of authority’s control.
Bavi milk brand so far was given right to only two companies. However, there are a lot of
companies taking advantage of the lax management, they set up the companies with the
same name to cheat consumers. They purchase milk from dairy farmers having under and
poor standard milk which afects the consumer health. Here, the list of the companies who
were not allowed to use the brand of Bavi milk but still sell a huge amount of milk everyday
(Table 9).

2.7. Conclusion and recommendation

In conclusion, the value of income in the chain is distributed unequally. The beneits that
farmers receive are inadequate with the costs they have to pay. This is a particular chain
in which the main factors boosting the chain are factories and the revenue increasing also
relects the beneit of them. The result is that the value-added in the chain is also biased
toward the dairy plant. This chapter pointed out the shortcomings in the cost calculation of
farmers. All the expenses such as wages and the opportunity are calculated in the total cost
of dairy plant, whereas dairy farmers do not mention about these cost. Thus, in terms of ben-
eits, farmers sufer more and face with more disadvantages, even though they should have
received more incentives. In terms of management, Bavi’s authorities could not manage the
output of milk in the perfect way. It is the lax management has led to a series of counterfeit
goods appear on the market today. These low quality products were sold right on the high-
way and the Bavi’s tourist destinations, which afect negatively on Bavi’s brand, tourism and
even consumer health.
Thus, irstly, it is necessary to make measures in order to obtain the balance among actors,
especially dairy farmers.
• In the whole value chain, the dairy plants play the most important role. Farmers could
not have enough power to negotiate with dairy companies about prices of raw milk. As a

Name
1 Bavi Yogurt LTD company

2 Bavi milk investment JSC company

3 Vietnam Dairy Bavi JSC

4 Fresh milk JSC company

Bavi fresh milk JSC company

6 Bavi milk and cake production JSC company

Bavi milk and cake JSC company

Source Calculated by data collected, .

Table 9. Name of company illegally using Bavi milk brand.

 Dairy Value Chain In Vietnam: Evidences from Bavi Area 115
http://dx.doi.org/10.5772/intechopen.69450

result, dairy companies could use many methods to buy raw milk of farmers at a low price.
Thus, to increase the proits received of dairy farmers, it is indispensable to increase the
role of farmers.
• To ensure the criteria in strict quality of milk, farmers should choose the good breeding
cows that have ability to avoid disease and get high productivity.
• The small-scale milk collection of dairy companies, in fact, is a costly method. Moreover,
the gap in the education level of each factors spark diiculties for the implementation of
contracts. Therefore, companies should combine small milk collection stations into the
largest milk collection stations. The commune should establish some organizations to rep-
resent farmers to sign contracts with the companies.
• Building waste-treatment system In Bavi, it is clear to the catle waste in front of farmer’s
house farmers aim to use it to grow grass . However, it not only pollutes the human liv-
ing environment but also afect the cleanliness of cows and milk. Thus, it is necessary for
government to build a waste-treatment system.

The above measures could not only solve the problem of distribution but also enhance the
connection between actors. Management is also the problem that the thesis wants to give
recommendations that improve the value chain of dairy products in Bavi.
• To be able to manage the value chain of Bavi milk, policymakers and milk entrepreneur
should encourage factors to be aware of the value chain of dairy milk and the need and
beneit when they participate deeply in the chain.

• Policymakers should check and review all enterprises using Bavi Milk brand for develop-
ing their business. This activity could prevent other companies from using the Bavi milk
brand for developing business illegally by taking advantage of the Bavi brand.
• Checking the quality of raw milk and milk products frequently. In serious problem, au-
thorities should deprive the license registration of companies.
• Provide adequate information to dairy farmers about the companies operating illegally to
avoid the milk supplying from farmers to those companies.
• Do not allow the distributors to sell the unclear brand product.

With these measures, the Bavi milk brand would becoming stronger, reaching farther and
each actor in the value chain will be received beneits that they deserve.

Acknowledgements

We would like to acknowledge all supports from Vietnam National University at Hanoi and
especially from Faculty of International Business and Economics, University of Economics
and Business. We also appreciate our family and colleagues for their constant encouragement.
Without them, this research would not have been possible.
116 Agricultural Value Chain

Author details

Nguyen Viet Khoi1,2*, Hoang Thi Hai Yen1, Tong Van Khai1, Nguyen Tien Duc3 and
Dang Thi Phuong Hoa4

*Address all correspondence to khoivnu@gmail.com

Vietnam National University, Hanoi, Vietnam
Faculty of International Business and Economics, University of Economics and Business,
Hanoi, Vietnam

Noibai International Airport, Airport Corporation of Vietnam, Hanoi, Vietnam

4 Journal of Economic Studies, Vietnam Institute of Economics, VASS, Hanoi, Vietnam

References

[1] Khoi NV. Wicked problems A value chain approach from Vietnam’s dairy product.
Springer Plus. 2 -
[2] Khoi NV. Global Value Chains of Transnational Corporations The Practical Approach
from China. Hanoi VNU Publishing house
[3] Porter ME. Competitive Advantage Creating and Sustaining Superior Performance

[4] Kapslin R, Morris M. A Handbook for Research Value Chain. Otawa IDRC

[ ] Khoi NV. The dairy industry in Vietnam A value chain approach. International Journal
of Managing Value and Supply Chains. 5(3)

[6] Khoi NV. Opportunities consolidation and mergers in the dairy sector in Vietnam from
the perspective of the value chain. Journal of Economic Research Economics Studies .
 Chapter 7

Soybean Agribusiness in Argentina ( 99 – 5): Socio-

Economic, Territorial, Environmental,
Soybean Agribusiness and Political
in Argentina (1990–2015):
Implications
Socio-Economic, Territorial, Environmental, and
Political Implications
Sebastián Gómez Lende and Guillermo
Velázquez
Sebastián Gómez Lende and Guillermo Velázquez
Additional information is available at the end of the chapter
Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.70463

Abstract
Nowadays, soybean value chain is both the major expression of agribusiness and one of the
most troublesome uses of territory of Argentina. This chapter is aimed to analyzing the wor-
rying socio-economic, territorial, environmental, and political implications unchained by
the expansion of the soybean’s patern during the last years. On the basis of scholarly lit-
erature and both oicial and unoicial sources of data, we have studied the restructuration
of the rural sector, the concentration of both the rural property and the agro-industrial chain,
the new territorial enclosures, the socio-ecological and health consequences of the soybean’s
advance, and the inluence of the transnational seed industry on the farmers’ subordination.
Our results show a substantial reduction of both the amount of rural units and the tradi-
tional production areas, the emergence of new leasing practices, the accumulation chain’s
vertical integration, the growth of the land’s concentration, the expulsion of aborigines and
peasants, the increase of deforestation and environmental degradation, the loss of legal and
food sovereignty, and the serious impacts on the population’s health due to the massive
fumigations with agrochemicals. The chapter’s indings suggest that soybean agribusiness
should be considered as an irrational use of territory for most of the national society.

Keywords: agribusiness, GM soybean, rural restructuration, land’s concentration, vertical

integration, territorial enclosures, environmental and health issues, seed and agrochemical
companies, Argentina

1. Introduction

Geographic space just can be explained by analyzing the division of labor’s dynamics and
the diferent uses of territory [1], i.e., the coniguration of material and immaterial lows that

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distribution, and reproduction in any medium, provided the original work is properly cited.
118 Agricultural Value Chain

show the spatial and temporal regularities of a given cycle of capital's rotation and reproduc-
tion [ ]. Regarding the agricultural uses of territory belonging to the so-called agribusiness
[3], such as spatial circuits of production [4] are typically organized through agro-industrial
value chains, which include several stages (e.g., agricultural inputs’ supply, rural activities,
industrialization and distribution of goods, transport, inancial, and commercial networks,
etc. . Various conlicts and mechanisms of domination are unleashed on the surplus’ appro-
priation owing to the input-output links and the unequal social relations of power developed
among the agents of each chain’s stage.
Since each of the agribusiness clusters has got one (or more than one) accumulation cores, the
most dynamic capitalist agents deploy several strategies to articulate the productive chain
according to their own interest. As a result, they appropriate most of the proits produced
by other agents and the resources injected into the circuit by the State [ , 6]. Such situation
implies that agribusiness may be considered as the rural expression of the “neo-extractiv-
ism [7], i.e., updating the natural resource exploitation and proits external appropriation’s
patern introduced in Latin America during the colonial age and renewed during the follow-
ing periods [8].
Although in the past, soybean stayed as an exotic species and a botanical rarity in Argentina,
currently it concentrates % of national grain area and . % of Argentinean grain production.
Soybean areas have grown exponentially during the 4 last decades, climbing from 30,470 hect-
ares in the agricultural year / to , , hectares in / . Similarly, soybean
production have increased % between / , , tons and / , ,
tons [7, ]. As a result, Argentina became the third soybean world producer and exporter, as
well as the irst soy oils and lours exporter [10, 11].
Several factors deserve to be mentioned in order to explain that change, such as the suitability
of this crop to be combined with the production of hybrid varieties of wheat, the growth of the
European market of balanced feed for pig and poultry [ ], the structural reforms introduced by
neoliberalism during the s, the world crisis of stockbreeding, the sustained growth of exter-
nal demand for vegetable proteins due to the European Economic Community’s authorization
on the imports and processing (but not planting) of GM soybeans, and the consequent rise of
the soybean’s international price. Lately, the agro fuels boom and the inancial crisis unchained
in , which encouraged investment funds to migrate from the real state markets to the com-
modities markets, have undoubtedly helped to consolidate the soybean patern in Argentina.
Although big farmers, agro-industrial enterprises, seed companies, and even the National State
often invoke the alleged beneits of this patern, during the last years, a leafy scholarly lit-
erature has revealed the dark side of the soybean boom. Several researchers have presented
general studies on the negative impacts of the soybean patern [7, 13– ], whereas other authors
exhaustively analyze individual features of this mater. For instance, Teubal emphasizes the vul-
nerable and dependant condition of soy monoculture and its export orientation [ ], whereas
Teubal and Rodríguez claim that soybean patern is the major driver of the concentration and
transnationalization of the Argentinean agro-industrial accumulation chain [ ]. Hernández
focuses on the cultural and empresarial fragmentation of the rural sector [ ], while Domínguez
 Soybean Agribusiness in Argentina (1990–2015): Socio-Economic, Territorial, Environmental... 119
http://dx.doi.org/10.5772/intechopen.70463

and Sabatino state that soybean’s boom has led to both the scarcity and the price increase of the
national diet’s traditional foods [ ].
Other researchers have expressed concern about the risks of the transgenic soy agriculture
at great scale, noting the loss of legal and food sovereignty stemming from the seeds’ priva-
tization [ – ]. Furthermore, several papers have studied the environmental implications
of soybean fever, specially soil erosion, virtual water exports, and deforestation [ – ]. In
addition, Rodríguez Striebeck analyzes the soybean boom’s inluence on the land struggles
[33]. Finally, other works have focused on the relationship between soybean fever, fumiga-
tions with agrochemicals and the substantial growth of oncological diseases and births with
malformations reported during the last years in the rural towns [34–38].
As a result, GM soybean is not only the major expression of agribusiness in Argentina but one
of the most controversial and troublesome uses of territory in this country. Because of such situ-
ation, the main purpose of this chapter is analyzing the worrying socio-economic, territorial,
environmental, and political implications unchained by the expansion of the soybean’s patern
during the last years.
Firstly, the soybean agribusiness’ socio-economic issues, i.e., the technique and productive
restructuration of the rural sector, the new leasing practices, and the agro-industrial chain’s verti-
cal integration are studied by analyzing the variation of the area sown with other crops and occu-
pied by livestock, the reduction of rural units, the surface leased to sowing pools and investment
funds, the origin of such capitals, and the participation of the main soybean irms in diferent
links of accumulation chain. Secondly, the territorial perspective, i.e., the new enclosures associ-
ated to both the land’s concentration and the expulsion of peasants and aborigines, is considered
by describing the land grabbed by the landowners, the land struggles in soybean provinces, and
the dispossession mechanisms carried out by farmers, sowing pools, investment funds, and agro-
industries. Thirdly, the environmental and health consequences of this patern are discussed by
considering the area of native forests logged due to the soybean frontier’s expansion, other eco-
logical degradation’s phenomenon (e.g., virtual water exports, soil erosion, greenhouse gas emis-
sions, etc. , the volume and kind of agrochemicals used in soybean cultivation, and the reports
on health problems associated to such fumigations. Finally, the inluence of the transnational
seed industry on the farmers’ subordination and the loss of both legal and food sovereignty is
demonstrated by identifying the major companies of the sector, characterizing their accumula-
tion strategies, and describing the main conlicts regarding the acquisition and use of transgenic
soybean’ seeds.

2. Socio-economic issues of the soybean boom: from the agricultural

restructuration and the rural units decreasing to the new leasing practices
and the vertical integration by property

Soybean agribusiness is essentially an exports-oriented accumulation chain. More than %

of production is exported to countries including China, India, the European Union, Pakistan,
120 Agricultural Value Chain

Bangladesh, and Japan [10, 11]. Since soybean value chain concentrates % of agricultural
exports [ ] and is the major exporter sector . % of the Argentinean economy [ ], such
productive circuit generates bulky proits , million of dollars per year . A substantial
part % of these proits is appropriated by the National State by collecting taxes on exports.
Nevertheless, the soybean value chain’s contribution to labor market is very small. Actually,
the labor force employed in the soybean cluster reaches , workers, i.e., . % of agro-
industrial employment and . % of whole employment. Such igures imply a labor intensity
seven jobs per million of dollars of value , three times smaller than the national average [40,
41]. In addition, soybean boom has led to a dramatic restructuration of the rural sector in our
country.
As shown by Figure 1, agricultural stage of the soybean circuit has acquired a noticeable geo-
graphic dispersion, not only strengthening in the Pampas, i.e., Buenos Aires, Córdoba, Santa
Fe, Entre Ríos, and La Pampa, but spreading much of other Argentinean provinces e.g., San
Luis, Jujuy, Salta, Catamarca, Santiago del Estero, Tucumán, Chaco, Formosa, Corrientes, and
Misiones). In fact, all these provinces increased its area planted with soybean among 33.3 and
. % during the period – , except for Misiones [ ]. According to the last Agricultural
National Census performed in , soybean has absorbed among the third and more than
half of the agricultural area of the provinces of Buenos Aires, Santiago del Estero, Chaco,
Tucumán, Córdoba, Entre Ríos, and Santa Fe [ ]. Signiicantly, soybean means % of the

Figure 1. Area planted with soybean at department level. Argentina, agricultural year / .
 Soybean Agribusiness in Argentina (1990–2015): Socio-Economic, Territorial, Environmental... 121
http://dx.doi.org/10.5772/intechopen.70463

land conquered by the agricultural frontier’s advance in Chaco, Tucumán, Salta, and Santiago
del Estero [11]. Although both the Pampas’ periphery e.g., Entre Ríos, and La Pampa and
the provinces located outside this region (e.g., Chaco, Santiago del Estero, etc.) have increased
substantially its relative weight on the planted area, the Pampas’ core still concentrates % of
soybean’s production units [ , 11]. Likewise, the chain’s agricultural stage shows high levels
of business concentration. In fact, % of agricultural units mean % of soybean grain’s pro-
duction [43].
According to Silveira, nowadays modern uses of territory seek to erase the traces of the past
in order to the space be rewriten by the new rationalities of the present [44]. The aforemen-
tioned soybean expansion is, by way, a clear example of this logic, though it has led to the
disappearance of both the ancient practices of rotation among stockbreeding and agriculture,
and the traditional regimes of alternation between diverse crops. For instance, more than
millions of heads of catle were suppressed during the s, while the livestock decreased %
between and and the amount of milking yards was halved [ ]. In the Pampas, i.e., a
strongly milk’s production-specialized region, some milk companies closed most of their pro-
duction units to plant soybean. Furthermore, scarcity of lands for stockbreeding has implied
decreasing of the livestock area, as well as the cows’ concentration in the so-called feed lots.
Other traditional productions were sacriiced in order to free lands to the soybean frontier’s
advance. For example, the oats area decreased by % between / and / , as
well as sunlower and barley area reduced by . and . %, respectively. Moreover, the falls
sufered by the canary grass . % , the millet . % , and the lax areas . % were even
more substantial [ ]. Generally speaking, although other crops have increased its area e.g.,
sorghum, corn, wheat, bread wheat, horticultural products, peanut, etc.), such global varia-
tions hide a dramatic reduction during the early years of soybean boom. Outside the Pampas,
the previous structural crisis of some crops was functional to the monoculture’s advance too.
For instance, Tucumán lost the quarter of sugar cane area between and , whereas the
Chaco’s coton area reduced by . % during the period – [ ].

Owing to the growing weight of science and technology in rural activities, the new soybean
production’s requirements have involved the introduction of specialized technical systems
(e.g., direct sowing, modern rural machinery, global-action herbicides, fertilizing with nitrog-
enous, prilled urea and phosphorus, etc.). Both the modernization of agricultural practices
and the incorporation of the last technology led to the massive indebtedness of the rural pro-
ducers. Due to the high interest rates, the original debts’ values increased times in few
years. As a result, in the beginning of the s, the rural sector owed million dollars to
banks, as well as million dollars to inputs suppliers. Such situation implied the bargain
sale of million hectares and the mortgage of million hectares [7, ]. Since they were
unable to resist the productive and inancial costs of the new soybean’s patern, several small
and medium-size producers disappeared, the same ones who could renew their equipment
and living with dignity before the soybean boom [ ].

According to the Agricultural National Census, almost third . % of the Argentinean rural
production units disappeared during the period – [ , 46]. A strong, noticeable
empirical correlation between such farms reduction and the soybean specialization may be
122 Agricultural Value Chain

identiied. Signiicantly, none of the major soybean provinces lost less than the quarter of
rural production units during the analyzed period, except for La Pampa and Salta. In addition,
these ten provinces represent . % of the missing farms of the country , over a total
of , . Such reduction was equal to or higher than the national average in almost half
of the cases, as demonstrated by Entre Ríos − . % , Córdoba − . % , San Luis − . % ,
Tucumán − . % , and Buenos Aires − . % . Finally, the four major soybean provinces, i.e.,
Buenos Aires, Córdoba, Santa Fe, and Entre Ríos, have meant . % of missing units of rural
production.

Most of those small- and medium-size farmers who kept their lands inally leased it to extra-
agricultural origin companies, such as sowing pools and investment funds. These companies
include a great variety of irms, such as agronomies, big storing enterprises, input suppli-
ers, banks, insurance companies, managers of retirement and pension funds, isolated inves-
tors, rural machinery contractors, agro-industrial companies, agricultural producers, writing
desks, and both national and foreign holdings [ ]. Although the sowing pools’ origin is very
diverse, such leasing practices are basically carried out by the inancial capital, which resorts
to various mechanisms e.g., trusts, foreign funds capitalizations, stock-exchange organiza-
tional forms, local alliances, informal agreements, etc.) to appropriate the rural lands in order
to control the accumulation of the chain’s primary stage and entering and exiting the com-
modities market quickly [ , 47]. Currently, % of agricultural area of the country has been
leased to sowing pools and investment funds [17].

Although all these capitals resort to diferent mechanisms e.g., leasing-network irms, pat-
rimonial ownership, purchase of lands by using external capitalization funds, etc.), they
develop a common strategy diversifying agro-weather, economic, political, and legal risks in
order to combine high levels of liquidity, rapid returns on initial investment, and big inancial
and agricultural rents. Thus, such mega-companies obtain lower prices on the inputs supply,
impose conditions to the farmers, and inluence the prices of the land [47].

As a result, a lot of small- and medium-size farmers have been relegated from the productive
circuit, keeping the nominal property of their ields but losing all control over the agricultural
practices developed there. Provided the economic rationality of sowing pools is obtaining
the highest proit in the short terms, farmers’ lands often are super-exploited. Once farmers
had regained efective possession of their lands, they face several diiculties in order to re-
enter the productive circuit due to the loss of fertility, the destruction of soils, and the high
economic costs of its reparation. Consequently, farmers use to sell their lands, thus increasing
the concentration of rural property in few hands.
Typical agro-industrial backward integration strategies are developed too. Agro-industrial
stage of soybean circuit includes the production of lours and oils, as well as the storage and
shipment of these products. As the agricultural link, the agro-industrial stage is highly con-
centrated, both in economic and territorial terms. In fact, % of crushing plants are mainly
located in the south of Santa Fe, i.e., the biggest port and agro-industrial cluster in the world. As
the great crushing capacity of the Argentinean soybean cluster is very similar to the USA and
Brazil ones, oil industries feed not only from the national production but the grains imports
from Paraguay. Soybean agro-industry has an oligopsony structure, which includes the major
 Soybean Agribusiness in Argentina (1990–2015): Socio-Economic, Territorial, Environmental... 123
http://dx.doi.org/10.5772/intechopen.70463

grain traders from USA, France, Swizerland, Netherlands, and China e.g., Cargill, Louis
Dreyfus, Glencore, Bunge, Noble, Nidera, and Cofco . However, some big national irms have
a signiicant participation in soybean agribusiness too, such as Oleaginosa Moreno, Aceitera
General Deheza, Molinos Cañuelas, Vicentín, and Molinos Río de la Plata. Remarkably, only
thirteen companies produced % of both soybean lours and oils in , while just eight
irms meant . % of oils and . % of lours [48].

Moreover, the corporations aforementioned control two other strategic links of soybean circuit
the biodiesel production and the exports. Owing to both the world agro fuels boom and the
growth in European and US markets, the Argentinean biodiesel production increased . %
between and , rising from , to , , tons. The domestic biodiesel market
is mainly controlled by Louis Dreyfus, Eurnekián, Bunge, Aceitera General Deheza, Vicentín,
Glencore, and Molinos Río de la Plata [ ]. Regarding the chain’s inal stage, soybean agribusi-
ness currently represents both % of the Santa Fe’s foreign trade and between the third and
the half of Córdoba’s exports. Furthermore, soybean means around the tenth, the ifth and the
quarter of the exports of Buenos Aires, Entre Ríos, and La Pampa, respectively. Finally, this
value chain represents % of the foreign trade of Santiago del Estero and Chaco [ ].
In addition, it is worthwhile noting that some oil industries and grain traders e.g., Louis
Dreyfus, Bunge, Nidera, Aceitera General Deheza, and Molinos Río de la Plata) have purchase
and/or leased large tracts of rural lands for soybean sowing in order to ensure a stable sup-
ply of material raw [ ]. Furthermore, these agro-industries have created their own storing
territorial networks and so have reinforced their control over the circuit’s primary stage. The
aforementioned irms and others companies e.g., Vicentín, Cofco, Toepfer, Cargill, ADM,
etc. have carried out forward integration too, speciically toward the logistic and transpor-
tation stages. This has been done by using three mechanisms the purchase of big leets of
trucks, the control of the share capital of some railroads e.g., The New Central Argentinean
Railroad, which belongs to Aceitera General Deheza), and the appropriation of most of the
port infrastructure of the provinces of Santa Fe, Buenos Aires, Entre Ríos, and Chaco.

3. Territorial perspective: soybean fever, rural property’s concentration,

and the new enclosures

Soybean area’s growth and the land’s concentration are two phenomenon closely related. In
fact, landowners hoarded , , hectares in the beginning of the s, whereas ,
farmers only gathered , , hectares [14]. Moreover, just nine holdings control % of rural
lands of the province of Buenos Aires. This is because of two factors. On one hand, traditional
rural families have joined foreign capitals by complex mechanisms (e.g., trusts, anonymous part-
nerships, dummies, farms subdivisions, fake sales, etc. in order to shirk the provincial Treasury
[ ]. On the other hand, some mega-companies have emerged too, as shown by the cases of
both national e.g., Los Grobo, El Tejar, MSU, etc. and foreign irms–for instance, Cresud and
Adecoagro, belonging to the Hungarian-American tycoon George Soros. According to various
estimations, such mega-companies control an area of , , hectares [7, ].
124 Agricultural Value Chain

It is worthwhile noting that both land’s concentration and new leasing practices have
strongly relied on the soybean’s expansion outside the Pampas’ core. Operating as the driver
of a substantial worsening of rural violence, such phenomenon is clearly associated to the
so-called new enclosures, i.e., the silent but relentless cornering process sufered by peas-
ants and aborigines during the last decades [ ]. Since the soybean fever encouraged big
farmers, landowners, sowing pools, investment funds, and oil industries to expand toward
the Pampas’ edge and the Argentinean North, new territorial enclosures have risen in such
regions. Current legislation both recognizes Aboriginal land rights and ensures the land own-
ership to those peasants who can prove they have occupied and exploited it during at least
years. Nevertheless, the legal precariousness of the land property in various provinces often
implies that subaltern groups to be easily overwhelmed by the hegemonic agents of soybean
agribusiness.

According to oicial data, conlicts on the control of the land were reported in Argentina
in , involving , rural families and an area of , , hectares. It is worthwhile not-
ing that . % of these situations were denounced in soybean provinces e.g., Buenos Aires,
Chaco, Córdoba, Entre Ríos, Formosa, La Pampa, Salta, San Luis, Santiago del Estero, and
Tucumán [ ]. In addition, unoicial sources claim that land struggles have been increased
in the Argentinean North and the Pampas’ edge during the last years. In fact, conlicts
were reported en , which involved , , hectares and , people. Signiicantly,
% of such conlicts started since [ ], i.e., since the soybean’s expansion outside the
Pampas sped up.

A leafy scholarly literature has reported a wide range of coercion mechanisms used in order
to loot and misappropriate the peasants’ and aborigines’ lands. On one hand, some manipu-
lation and deception strategies allow farmers and indigenous to be evicted without major
diiculties e.g., signing blank documents that actually are lending or eviction agreements
[ , ]. On the other hand, political and legal power operate as dispossession guarantors
by both ordering evictions for indigenous and peasants and accepting the fake company-
owned documents as legal. Such support often involves the entire repressive apparatus of the
State, from judges and lawyers to congressmen and public forces of security, who grab the
rural families’ lands to put them under the control of Buenos Aires, Córdoba, Santa Fe, and
Tucumán’s soybean companies [ , ].

Finally, dispossession of the land implies nonlegal actions too, even paramilitarization. Physical
wounds and even death are the result of territorial struggles unchained by the agribusiness
logic [ ]. Several strategies are commonly used on this regard, such as de facto occupations,
even when peasants have got legal documentation that legitimized their land rights, land
enclosures and deforestation, and blocking access to roads, grazing areas, and drinking water
sources. Furthermore, the so-called white guards, i.e., civilian paid by the soybean producers,
intentionally pollute water wells, kill livestock and farm animals and pets, threat farmers, ire
ranches, and even murder peasants and aborigines [ ]. One of the most afected provinces
is Santiago del Estero, where conlicts were reported in , over a total of [ ]. The
misappropriation of almost 4 million hectares in this province has implied evictions, violations
of human rights, and even deaths. Often real states agencies sell lands with its inhabitants
 Soybean Agribusiness in Argentina (1990–2015): Socio-Economic, Territorial, Environmental... 125
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inside, then vacating and guarding them by using provincial police’s special brigades. Such
complicity chain includes entrepreneurs, lawyers, notaries, judges, and congressmen too [ ,
]. Similar practices have been reported in Salta [ ].

4. Environmental and socio-ecological issues: deforestation, degradation,

and the health question

Silent enclosures and undisguised strategies of violence have been complemented by defores-
tation. Almost million hectares of native forests were cut down in just years –
[ ], a igure that means . % of world deforestation, according to the International Panel on
Climate Change [ ]. In fact, the national annual rates of deforestation luctuate from .
to . %, i.e., igures . and even . times bigger than the world annual averages . to
. % estimated during the period – [ – ]. Although this serious question led to
deforestation was restricted and even banned by the State, illegal logging continues because
of the unceasing expansion of the agricultural frontier [ ].

Soybean’s advance has been the major driver of forest area reduction between and
[ ], as well as an indirect deforestation driver too, though it has expelled traditional pro-
ductions from its historical cores e.g., coton, sugar cane, stockbreeding, etc. . Remarkably,
. % of cleared area , , hectares involved provinces that belong to both the soybean
core’s area and the peripheral regions recently conquered by the soybean’s expansion. As
shown by Figure 2, deforestation map mainly involves soybean provinces, such as Santiago
del Estero, Salta, Chaco, Córdoba, Entre Ríos, and Formosa, which concentrate . % of the
logged area in the whole country. Moreover, such provinces have substantially exceeded
both the national and world averages. For instance, the deforestation rate of the north of
Córdoba during the period – was times bigger than the world rate, whereas the
Santiago del Estero’s logging speed during the period – was – times bigger than
the international average. Finally, Salta is currently known as the capital of logging. This
is because the government uses to modify the regionalization established by the Forests Law
in order to satisfy the soybean irms’ requirements. In addition, foremen, corporations, and
organisms strongly pressure aborigine communities by demanding them to sign deforesta-
tion permits or to accept the logging of conservation areas in exchange of water, food, and
ambulances [ ].

Soybean’s boom is also one of the major responsibility for the growth of greenhouse gases’
emissions, the loss of biodiversity, and the increasing frequency of loods and rockslides in
our country. Likewise, soybean is the main crop involved in desertiication process, due to the
for free-exports of virtual water and essential edaphic resources (e.g., nitrogenous, phosphor,
potassium, calcium, magnesium, sulfur, iron, manganese, boron, zinc, molybdenum, chlo-
rine, copper, etc. [ , 30]. Environmental degradation (specially, deforestation) completes the
expulsion of Aborigines by destroying their ethnical, cultural, and socio-economic subsistence
matrix. Indigenous population of the Argentinean North was estimated in , people in
the beginning of the s, the half of whom have been condemned by deforestation to begin
126 Agricultural Value Chain

Figure 2. Reduction of native forest area in Argentina at departmental level – .

big and medium-size cities of the provinces of Santa Fe, Chaco, Formosa, Salta, Misiones, and
Buenos Aires [14]. Thickening the extreme misery and poverty’s urban belts, such masses of
dispossessed often sufer starvation and restricted access to drinking water, as well as high
levels of child mortality due to the migration of zoonotic illnesses (e.g., hanta virus, dengue,
leishmaniasis, etc. from the forest to the cities [ ].

Another serious implication of soybean agribusiness is the health issue caused by the mas-
sive fumigations with agrochemicals. National agrochemical consumption has exponentially
grown since the introduction of transgenic soybean and its technological package, climbing
from liters in to million of liters in . While in other countries the use of agro-
chemicals does not use to exceed liters per hectare, the national average is liters per hect-
are, reaching peaks of liters in Santiago del Estero and Chaco. Such values would imply
that each Argentinean inhabitant is exposed to a dose of 8 liters of agrochemicals, whereas
this igure would oscillate from to liters per capita in the soybean regions [63]. Soybean
agrochemicals’ package includes glyphosate of ammonium and other global-action herbi-
cides, insecticides, and fungicides, such as cypermethrin, chlorpyrifos, paraquat, glufosinate
of ammonium, bromoxynil, malathion, , -D, endosulfan, hexachlorobenzene, heptachlor,
and atrazina. It is worthwhile noting that the last ive agrochemicals mentioned above have
been banned or restricted in several countries, whereas glyphosate of ammonium has been
classiied as probably carcinogenic by the World Health Organization in .
 Soybean Agribusiness in Argentina (1990–2015): Socio-Economic, Territorial, Environmental... 127
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According to the Atlas of Childhood’s Environmental Risk in Argentina, the most afected
departments by the use of pesticides largely matches regions that have been intensely con-
quered by the soybean monoculture, i.e., center and southeast of Córdoba, south of Santa Fe
and Chaco, north of Buenos Aires, much of Santiago del Estero, Tucumán, and Entre Ríos, etc.
(Figure 3). Soybean, in fact, is the main crop involved in the Pollution by Pesticides Index of the
mentioned Atlas [64].

Soybean regions’ inhabitants have reported a wide range of serious socio-economic, environ-
mental, and health damages due to the aerial and land spraying with agrochemicals and the pol-
lution produced by grain and pesticides’ storing plants. Some of these damages have included
the hives and horticultural cultivations’ destruction, the mortality or/and degenerative disease
of poultry and catle, the pollution of air, soil, and surface and groundwater, and certain health
issues (e.g., chronic respiratory diseases, diarrhea, dizziness, cephalalgia, nauseas, vision
problems, dermal rashes, hormonal disruptions, and thyroid disorders). Even more serious
pathologies have been atributed to the soybean’s patern too, such as hemolytic anemia, rheu-
matoid arthritis, lupus, purpura, central nervous system damage, Hodgkin’s disease, multiple
sclerosis, cerebral ischemia, toxic liver diseases, and neurological disorders. Furthermore, other
health issues have been reported in the Pampas and the Argentinean North, such as male ste-
rility, births with congenital malformations, mutagenesis, and spontaneous abortions. Finally,
even some kinds of cancer e.g., leukemia, and urogenital, pancreatic, lung, breast, prostate,

Figure 3. Environmental risks by exposure to pesticides in Argentina in .

128 Agricultural Value Chain

stomach, and liver cancers have spread among the rural workers and the people living near
crops and storing plants. Importantly, in soybean regions both the malformations and cancer’s
incidence is to times bigger than the national and urban averages [ , 63, ].

5. Political implications: seed and agrochemical companies, farmers’

autonomy, and legal and food sovereignty

Despite the networks paradigm would seem to hide deep inequalities among the diferent
agribusiness’ agents and links, transnational corporations actually controls the whole global
value chains by deining both the general parameters of the agro-industrial system and com-
manding the technological innovation’s difusion. During the last years, the so-called
transgenic revolution encouraged seed companies to develop a complex mergers and acqui-
sitions process, which involved agrochemical and even pharmaceutical irms too. Owing to
such oligopoly structure, a handful of corporations (Monsanto, DuPont, Dow Agrochemical,
Bayer, Basf, Aventis, and Syngenta control % of transgenic seeds market and . % of
agrochemical market at world scale [14, ].
Such concentration of power allows companies to appropriate the so-called life’s rent [ ]
and to deploy several subordination and dependence mechanisms by applying owner rights
on seeds e.g., patents, licenses, etc. and creating new biotech packages e.g., when a novel
seed’s genetic feature and an agrochemical input are combined, patented, and sold by the
same company). As a consequence, farmers are prevented from easily reproducing the new
seeds and forced to acquire certain pesticides and fertilizers, thus losing all the control over
the irst chain’s link and becoming a captive market simple germplasm’s leaseholders for the
companies [14, ].
Such is the case of the Argentinean soybean agribusiness, which are based on two inputs patented
and marketed by Monsanto at world scale the RR glyphosate-resistant soy and the glyphosate
of ammonium. However, since the government approval of this crop variety only occurred in
, the initial, fast expansion of the new seed during the earlier years of soybean boom was
due to genetic smuggling and clandestine plantations, two phenomenon actively encouraged
by Monsanto [66]. As a consequence, nowadays . % of the soybean planted in Argentina is
transgenic [7].
From the mid- s onwards Monsanto has became the main agent of the whole soybean accu-
mulation chain by using diferent mechanisms. On one hand, the US corporation controls both
seed and agrochemical markets under almost monopolistic conditions. For instance, Nidera,
the leading company of the Argentinean Seeders Association (ASA), operates as a Monsanto’s
license irm by marketing transgenic soybean seeds belonging to this US company [14]. Such
situation has been reinforced by the Magnum Network, a system created by Monsanto in
that imposes an exclusivity contract on agronomies. Owing to that exclusivity contract,
agronomies cannot sell seeds of competitor irms and must accept both to adopt direct bill-
ing conditions and to provide detailed customer information by using a management system
directly connected to Monsanto's sales and marketing management [ ].
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Likewise, the Argentinean agrochemical market brings a return of . billion dollars per year
to the companies, % of which corresponds to glyphosate of ammonium [63]. Although such
pesticide is sold not only by Monsanto, but other companies too (e.g., Syngenta, Basf, Bayer,
DuPont, Dow AgroSciences, Nidera, Atanor, La Tijereta, etc. [67], the US corporation is the
one who appropriates the most part of the bulky proits generated by the sale of glyphosate.
Finally, Monsanto is the Cargill’s share capital owner, thus controlling a large part of the
agro-industrial stage [ ].

In the beginning of the Argentinean transgenic soy boom Monsanto did not strive to directly
beneit from the sale of the RR seed, but focused its atention in the marketing of glyphosate [ ].
As a consequence, farmers started to develop practices legally recognized by both the national
legislation and the FAO’s Phytogenetic Agreement, such as using the seed free of charge, shar-
ing it with other producers, multiplying it, and even selling and/or saving it for later re-sowing.
Nonetheless, Nidera and other license companies obtained in , the government approval to
impose an “extended royalties” system. According to that system, when farmers acquire the RR
soybean seed automatically sign a contract that not only impedes them saving and/or sharing
their harvest, but forces them to pay dollars plus taxes for each kilograms-bag of certiied
seeds they keep for planting in the following agricultural year [ ].

Since such contract meant a noticeable transgression to the Argentinean Seeds Law, the
extended royalties system was very resisted by the soybean producers, as well as avoided
by various mechanisms. As a result, in the beginning of the s, the use of certiied seeds
represented less than % of the soybean planted [66]. However, Monsanto only start the
relevant formal claims when the spread of its transgenic soy in the country was absolute, its
Magnum Network was already consolidated [ ], and the allegedly “clandestine” practices of
Argentinean farmers had favored it with the dissemination of the RR soy in Paraguay, Brazil,
and Bolivia, i.e., countries where transgenic crops were still banned [66]. By using the pretext
that farmers had violated the legal security of the seed industry and injured their intellectual
property rights, the US company begun to deploy diferent mechanisms of pressure and lob-
bying on the Argentinean government [ ].

Monsanto’s irst strategy was activating the royalties payment by the soybean marketed in
Argentina. Due to the failure of this tactic, Monsanto asked for national government to sanc-
tion a global royalties’ law. Such law should create a Technological Compensation Fund ori-
ented for collecting an aliquot that luctuated . – . % of selling price of soybean and lately
distributing such resources among the seed companies [ ]. Since the biter resistance of large
farmers determined the unfeasibility of the legislative project, Monsanto implemented other
measures in . By demanding a much higher fee % per ton than the traditional royalty,
the US company initiated litigations against Argentina in international courts and temporar-
ily abandoned the commercialization of soybeans in the country [66]. Moreover, Monsanto
fomented export blockades, achieved that European courts stopped and coniscated ships
loaded with Argentinean soybean in the Old Continent’s ports, and soughed the support of
congressmen, ambassadors, and politicians of the US government [ ]. Although Monsanto
possesses the monopoly on RR soy at world scale, such right is not valid in Argentina, since
the company never patented the transgenic event there [66].
130 Agricultural Value Chain

Owing to the poor results obtained by these strategies, Monsanto introduced another mechanism
of coercion controlling the later difusion of technological change. In , the US corporation
patented the RR Intacta Pro soybean, which is not only tolerant to glyphosate like the con-
ventional RR variety), but also has the Bt gene–it is resistant to some insect pests. Nevertheless,
Monsanto conditioned the commercialization of the new transgenic event to the production of
legal frameworks both public and private functional to its interests. In fact, the company stipu-
lated that its new soybean could only be acquired by those farmers who previously signed a
license agreement and expressly agreed to pay extended royalties at the time of purchase [ ].

As such system was much resisted by the soybean producers, in the National State
inally decided to regulate the seed market and operate as a guarantor of the Monsanto’s
intellectual property rights. On the one hand, the government conirmed the validity of the
contracts previously signed between the company and the farmers. On the other hand, the
State determined that the control of the origin (legal or illegal) of the seed should be carried
out by the National Seed Institute INASE . If the RR soybean’s origin is illegal, INASE will
apply sanctions and allow the seed companies to make payment claims to producers, around
dollars per ton [68]. Finally, this situation would be reinforced by the imminent sanction of
a new law of seeds, which will establish that only small farmers will be able to keep seeds for
free for later use, whereas larger farmers will be forced to tax companies.

6. Conclusions

Since accumulation chains reveal the spatiality of a cycle of rotation and reproduction of capi-
tal, the Argentinean soybean agribusiness provides a vast, exhaustive variety of empirical
examples regarding the diferent conlicts and mechanisms of domination and subordination
developed both inside and outside the agricultural-based production circuits. Undoubtedly,
soybean fever has introduced a historical breakpoint in the evolution of the national rural sec-
tor and so has created an insoluble paradox: the more soybean boom expands–thus capping
more than half of the grain area and beating harvest records from year to year, the greater the
reduction of the amount of farms is.
Three accumulation cores may be identiied within the soybean chain. The irst corresponds
to a primary stage’s privileged stratum: the large agricultural production units. Nonetheless,
the boundaries between this sector and the rest of the agribusiness’ links are diluted due to
the rising of an unprecedented phenomenon: the enormous weight acquired in primary pro-
duction by both extra-agricultural agents and the tenants of ields and not by their owners,
as was usual . Such is the case of soybean sowing pools, i.e., conglomerates where diferent
capitalist factions converge and overlap, combining the new leasing practices and the typical
strategies of purchasing of lands.

Second soybean chain’s accumulation core is the oil and lour industry, a link characterized by
high levels of concentration and foreignization. Such agro-industry has intensely developed
several strategies of backward and forward integration. For instance, oil irms have acquired
and/or leased of vast tracts of land in order to ensure a stable supply of raw material at low
 Soybean Agribusiness in Argentina (1990–2015): Socio-Economic, Territorial, Environmental... 131
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cost, thus reinforcing its control over the productive circuit’s primary stage. Moreover, these
companies have expanded to other chain’ stages, such as producing biodiesel and command-
ing both the transportation and the foreign trade lows.

Owing to the strategies of both accumulation cores, rural property is more and more con-
centrated in few hands, thus eroding the small and medium-sized farmer’s autonomy.
Importantly, such phenomenon is linked, likewise, to the production of the new territorial
enclosures in the Pampas’ edge and the Argentinean north. Deceptions and manipulations,
usurpations and evictions, blockades and repression, intimidation and assassinations are the
spurious practices deployed by agro-industries, landowners and sowing pools in order to grab
lands and push aborigines and peasants to move to the urban belts of poverty and misery.
In addition, soybean production not only leaves a wake of environmental destruction e.g.,
deforestation, loss of biodiversity, free exports of soil and virtual water, desertiication, etc. ,
but is also responsible for an even more perturbing question: the considerable amount of seri-
ous sanitary damages sufered by the population near cultivations, plants, and silos, due to the
aerial and terrestrial spraying with pesticides and the agro-industrial pollution. As the State
captures a substantial part of the bulky soybean income by collecting exports taxes, it operates
as silent witnesses (even a guarantor) of such processes of subjugation and devastation.
Finally, the third accumulation core is the transnational seed and agrochemical industry.
Operating behind the shadows, this industry remotely commands -both technically and
politically- the whole soybean agribusiness by using a myriad of mechanisms e.g., networks
of license irms, technological change’s difusion, ownership of one of the main grain traders
in the world, intellectual property royalties’ claims, political power, etc.). Such accumulation
strategies have not only led to the growth of the farmers’ dependence and the loss of legal
and food sovereignty but have created a buried chain of subordination and exploitation that
even afects one of the circuit’s accumulation cores -the large agricultural producers-, thus
generating harsh conlicts of power on the distribution of proits. Interestingly, political con-
trol and economic surplus of the soybean chain precisely accumulate in the stages (seed and
agrochemical companies, oil and lour industries , which least contribute to the generation of
value − and %, respectively, against % of primary production [41].

To sum up, all the implications aforementioned alike the activity’s small incidence on the
employment’s generation) suggest that the soybean value chain should be considered as an
irrational use of territory for most of national society.

Author details

Sebastián Gómez Lende* and Guillermo Velázquez

*Address all correspondence to gomezlen@fch.unicen.edu.ar
Institute of Geography, History and Social Sciences, National Council of Scientiic and
Technical Research, National University of the Center of the Province of Buenos Aires,
Tandil, Argentina
132 Agricultural Value Chain

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conlicto-con-monsanto
 Chapter 8

Agricultural Market Integration in the Commonwealth

of Independent States: What Are the Main Driving
Forces and Challenges?
Ivan Djuric, Linde Götz, Miranda Svanidze
and
Ivan Thomas Glauben
Djuric, Linde Götz, Miranda Svanidze and
Thomas Glauben
Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.69869

Abstract

Utilizing a price transmission approach, we focus on price relationships between the

countries of the Commonwealth of Independent States (CIS) and how price changes on
the world agricultural market are transmited to the domestic CIS markets. In this study,
we establish a unique price data set on ive diferent agricultural products i.e. wheat,
pork, beef, poultry and whole milk powder observed in eight diferent CIS countries.
The results of the price transmission analysis indicate that regional integration within the
CIS is strongest for pork and beef, followed by poultry and whole milk powder. The
integration of CIS markets in world agricultural markets is strongest for wheat and
beef, whereas it is relatively low for pork and poultry. Furthermore, beef markets in the
CIS countries are the strongest integrated within the region, with the EU and the world
market. Overall, our results indicate that domestic market support and trade policies,
physical trade lows between countries, infrastructure, and bilateral or multilateral trade
agreements play a key role in market integration of the CIS countries. These determinants
should be particularly considered when designing recommendations for improving agri-
food supply chain competitiveness in the CIS countries.

Keywords: CIS, agricultural markets, market integration, price transmission

1. Introduction

With quickly changing market structures of the Commonwealth of Independent States CIS
from centrally planned economies to open markets , privatization and concentration of supply

© 6 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons
© 2018 The
Attribution Author(s).
License Licensee IntechOpen. This chapter is distributed
(http://creativecommons.org/licenses/by/ under the
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unrestricted Creative
use, distribution,
Commons
and Attribution
reproduction in any License
medium, (http://creativecommons.org/licenses/by/3.0),
provided the original work is properly cited. which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited.
140 Agricultural Value Chain

chain actors especially in the processing and retailing sectors , an understanding of market
functioning has drawn considerable atention by the general public consumers , market play-
ers supply chain members , and policy makers.
Recent global agricultural price luctuations, so called commodity price peaks together
with geopolitical developments, e.g., creation of the Eurasian Economic Union in May ,
and its enlargement since January , and the Russian agricultural import ban imposed in
August , considerably afected trade relations of the Former Soviet Union/CIS countries
not only within the region but also with the rest of the world and had signiicant efects
on the domestic food prices. All these developments put food prices at the top of political
agendas around the world and especially in CIS countries. While an extreme increase in com-
modity prices usually represents a trigger for a surge in consumer prices, commodity price
falls are not necessarily relected in immediate decreases in consumer prices. Thus, under-
standing the price transmission mechanisms along the supply chain i.e., between diferent
members of the supply chain is crucial for seting an adequate agricultural policy which
will allow most market participants to beneit from a sustainable distribution of value added
along the supply chain [ ].

Agricultural supply chains link agricultural producers with food end consumers via the
processing food industry and the food-distributing retailers Figure 1 . This study focuses
on the supply chain stage of agricultural production of the farmers. Following a price trans-
mission approach, we investigate market integration and eiciency in agricultural sup-
ply chains in the CIS countries. To what degree are price shocks transmited between the
regions and from the world market to the domestic markets? Well-functioning and eicient
markets are characterized by strong integration, which could contribute to cushion price-
increasing efects of regional production shortfalls and prevent that prices increase beyond
world market prices.

Generally, a unique concept of market integration and eiciency does not exist [ ]. In this
chapter, we assume that a well-functioning market is a spatially eicient market which is
characterized by strong market integration. Thus, price shocks in one region are quickly

Figure 1. Research scope. Source own illustration.

 Agricultural Market Integration in the Commonwealth of Independent States: What Are the... 141
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transmited to the other regions inducing interregional trade lows when price diferences
exceed trade costs [ ]. Also, regional prices difer at most by the costs of trade between those
regions Law of One Price , and proitable opportunities for trade arbitrage do not persist.
Further, an eicient market is characterized by adequate trade costs, which are determined
by many factors, e.g., distance to other markets, quality and quantity of transport and com-
munication infrastructure, corruption, market risk, and legal barriers as phytosanitary license
and inspection requirements [3].
We investigate agricultural supply chains in countries of the former Soviet Union which
are linked to neighboring countries or even the world market by agricultural imports and
exports. Thus, we follow a comparative approach including ive diferent agricultural com-
modities i.e., wheat, pork, beef, poultry, and milk and eight countries of the CIS region i.e.,
Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, Russia, and Ukraine . To allow
comparability, we apply a uniform method to the comparable sample of data of the same
frequency and period of analysis. Data availability on agricultural prices in the CIS countries
is very limited which explains the existence of a research gap. Among the few exceptions
are Ref. [ ] on Georgian bread, sugar, beef and pork markets, and Ref. [ ] on the wheat lour
market in Georgia.

The remainder of this chapter is organized as follows in Section , we present our method-
ological approach and the data used in our analysis. Section presents the agricultural trade
characteristics of the CIS countries. Empirical results are presented in Section , while the pri-
mary determinants of market integration are discussed in Section . Conclusions are drawn
in Section .

2. Methodological approach and data

We analyze spatial transmission of diferent agricultural and food prices between various CIS
countries and between CIS countries and the world market. Speciically, we focus on wheat,
meat beef, pork, and poultry , and milk in eight CIS countries in the region. An overview on
the countries included in our analysis is presented in Appendix.

We analyze on the integration of agricultural markets in CIS countries with their regional trade
partners within the CIS region but also with the EU market and the world market. We evaluate
the integration of domestic CIS markets with the export markets in other CIS countries within
the region. We also examine how price changes from the EU market and international markets
are transmited to the domestic markets in the CIS region.
Focusing on the bivariate price transmission model, we characterize long-run dynamics
between price pairs consisting of a domestic price of one of the CIS countries and a world

We use world market and international market interchangeably in this article.

142 Agricultural Value Chain

market price or price of some CIS exporting country . We refer to a domestic market as fully
integrated in the world market, if price changes on the world market are completely transmit-
ted to the domestic market. A long-run price equilibrium is given as

Ptd = + Ptw + εt

where P t d and P t w are natural logarithm of domestic and world market prices at time t
espectively,the intercept parameter ,the slope parameter , and the residual ε tdenoting
the stationary disturbance term. The long-run price transmission parameter indicates the
degree in % to which price changes on the world market are transmited to the domestic
market. Perfect market integration is given if = , implying that a % price change on the
world market is transmited by % to the domestic market, leading to a % price change on
the domestic market.
We apply the augmented Dickey-Fuller ADF test [6] to test on stationarity of our data series.
We test for cointegration between the non-stationary price series using the Johansen test of
linear cointegration [7]. In case, we ind domestic and world market prices cointegrated, the
Ordinary least squares OLS regression yields consistent and eicient estimates of the long-
run equilibrium parameters [8].
As already mentioned above, data availability is one of the most critical issues when it
comes to research on food markets in the CIS countries. In this study, we have created
a unique data set for selected food products by combining diferent data sources, rang-
ing from statistical oices of the respective CIS countries, via diferent country reports
published by various international institutions e.g., WB, FAO, and OECD , all the way to
expert interviews. According to data availability, we are able to conduct the analysis for
wheat, meat pork, beef, and poultry , and milk i.e., milk powder markets of all eight
selected CIS countries.
Concerning wheat prices, we use producer, import, and export prices of wheat in diferent
countries. Data are sorted into two groups. The irst group refers to Armenia, Azerbaijan,
Georgia, Ukraine, and Moldova where we use average producer wheat prices. Since domes-
tic producer prices for wheat in Georgia are not available, we use the cost, insurance, and
freight i.e., CIF import price. The second group consists of the Customs Union members,
i.e., Russia, Kazakhstan, and Belarus. Considering that Russia and Kazakhstan are, besides
Ukraine, the main wheat exporters not only to the CIS region but also to the world market
as well, in addition to average producer prices, we also account for their free on board i.e.,
FOB export prices observed at the Black Sea harbors. For Belarus, we use the governmen-
tally ixed wheat purchase prices. We use average French FOB price at the port of Rouen
representative price for the Marché à Terme International de France MATIF commod-
ity futures market in Europe as a measure for the EU market price. Average FOB soft red
winter wheat prices of the USA serve as representative for the world market price. The time

For the simplicity we keep the term world market price for describing the long-run price equilibrium.
 Agricultural Market Integration in the Commonwealth of Independent States: What Are the... 143
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period covered by our data set ranges from until and difers between countries
and products. Thus, the number of observations varies between for Moldova and
for Belarus .

Our data set comprises pork prices for Armenia, Georgia, Belarus, Kazakhstan, Russia, and
Ukraine. In addition, we consider pork prices for the EU, Brazil, and USA, which are some
of the most important pork exporters to the CIS countries. Denmark, Germany, and Spain
together have exported more than % of total EU pork export to the CIS in . Our data set
contains two types of pork prices. First, for Ukraine, we account for producer prices, which
refer to the price paid for kg of live animal. Second, we account for the producer price for
kg of deadweight for all other countries. The conversion of the prices between kg of live
animal and deadweight is done by using the conversion rate of . for Ukraine [ ]. Our data
set covers the period from January until December . The number of observations
difers between countries, from observations for Ukraine to observations for Armenia,
Russia, EU, and USA.

As was the case for pork, we account for beef prices for Armenia, Georgia, Russia, Kazakhstan,
Belarus, and Ukraine. For the EU, we use the EU average beef price. For the world price, we
focus on beef prices of USA, Brazil, Uruguay, Argentina, and Australia, which are directly
involved in beef export to CIS countries. Our data set covers the period from January
until December . The number of observations difers between countries, from observa-
tions for Ukraine to observations for Armenia, Russia, EU, and USA.

Due to very limited data availability for poultry, only Georgia as a representative for the
Caucasian countries is covered by our analysis. For the EU price, we account for both EU aver-
age and country-speciic average poultry prices. Here, we selected Netherlands and Germany
as two of the most important EU exporters of poultry meat to CIS countries. The data set
covers a period from January until December . The number of observations difers
between countries, from observations for Ukraine to observations for Russia.

The milk prices used for the analysis are average monthly milk producer prices. For the selected
international markets, we use EU whole milk powder WMP export prices and FOB Oceania
WMP prices. In addition, we use domestic WMP prices for Netherlands and Germany, countries
that are the largest EU WMP exporters to the CIS countries accounting for and % of the total
CIS import, respectively. To compare the luid milk producer prices of CIS countries with the
WMP prices of the selected international markets, we transform the luid milk prices into WMP
prices using conversion factors obtained by the national experts of the selected CIS countries
[ ]. Thus, for Armenia, we use a conversion factor of . , for Belarus . , for Kazakhstan . ,
For Russia , and for Ukraine . . Our data set covers a period from January to December
. As in previous cases, the number of observations difers between the countries, ranging
from observations for Ukraine to observations for most other countries.

Overall, considering that most of the agricultural trade of the CIS countries is done in US
Dollars USD , prices in domestic currencies are converted in USD. Thus, all prices used for
the analysis refer to USD per measurement unit.
144 Agricultural Value Chain

3. Agricultural trade of the CIS countries

In the following, we provide an overview on agricultural trade of the CIS trade regarding
wheat, pork, beef, poultry, and milk which provides the basis for the interpretation of our
empirical results in Section .
Wheat production and trade are of a great importance for the CIS countries. From one side,
Russia, Ukraine, and Kazakhstan are becoming large wheat exporters that are important not
only for the CIS region but also for the international markets. This is especially the case for
Russia that became the largest wheat exporter in the world in of about million ton.
On the other side, Caucasian countries i.e., Armenia, Azerbaijan, and Georgia import more
than % of wheat from the CIS region, notably from Russia and Kazakhstan [ ]. From the
regional perspective, Russian wheat is the most important for domestic consumption, and
its quality is usually improved by imports of the high-quality Kazakh wheat. This is mainly
the case for Caucasian countries. Nevertheless, Kazakh wheat is almost the only source of
wheat for some Central Asian countries i.e., Uzbekistan, Tajikistan, and Kyrgyzstan . Besides
mentioned wheat exporting and importing CIS countries, Belarus and Moldova produce a
suicient amount of wheat for domestic production but are not large wheat exporters.
All the selected CIS countries are net pork importers. The EU is the largest supplier of pork
to the CIS countries with a share of % in . Only about % of pork is traded regionally,
where the main exporters are Moldova, Belarus, Russia, and Kazakhstan. Signiicant market
changes are recorded for the members of the Customs Union, where each member country
is supposed to adjust their meat import tarif according to the Union’s common trade policy.
This was particularly important for Kazakhstan, which did not have any signiicant internal
market protection before [ ]. Nevertheless, most of the selected CIS countries have a higher
level of price protection for pork compared to other products [ ].

In comparison with pork, CIS beef markets are considerably diferent. Namely, Caucasian
countries i.e., Armenia, Azerbaijan, and Georgia are net beef importers. The same is true
for Russia and Kazakhstan. About % of beef is imported from some of the international
markets excluding EU . Only about % is imported from some of the CIS countries. On
the other hand, the main beef exporting CIS countries are Belarus, Moldova, and Ukraine.
Overall, beef is one of the products that have the smallest level of price protection among CIS
countries [ ].

Similar to the CIS beef markets, some of the CIS countries are net importers, and some are
net poultry exporters. Concerning imports, about % is imported from the EU markets,
% from other CIS countries, and % from other international markets in , [ ] . The
net importing countries are Armenia, Azerbaijan, Georgia, Moldova, Russia, and Kazakhstan.
On the other side, some of the net importers also engage in poultry export but mainly on the
regional markets. The only two net exporting countries are Belarus and Ukraine. As is the case
with pork, poultry also has high level of price protection among CIS countries [ ].

Almost half of the total dairy products imported to the selected CIS countries originate from
the region. Namely, % of total diary imports originate from some of the CIS countries, where
 Agricultural Market Integration in the Commonwealth of Independent States: What Are the... 145
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Belarus, Russia, and Ukraine are the largest regional exporters. On the other hand, about
% of the total CIS dairy imports originate from the EU, where Netherlands, Germany, and
Finland represent the largest exporters, covering % of the EU exports to CIS countries. Only
about % of dairy products are imported from some of the world markets excluding CIS and
EU . Concerning milk, it is mainly imported in the form of a milk powder. About % of total
milk powder imports by the CIS countries originate from Belarus and Ukraine, which are net
exporters. Further, about % of milk powder is imported from EU markets.

4. Empirical results

Empirical results are presented for each of the ive agricultural products individually. Besides
the comparison of average price levels between countries, we provide a detailed overview
on the patern of market integration for each product. Market integration for the diferent
agricultural products is analyzed on an aggregated level for the CIS countries on average and
on a disaggregated level for individual countries. Market integration of the CIS countries is
investigated regarding their regional integration in the CIS, the integration with the EU mar-
ket and the world market.

4.1. Wheat

Domestic price and trade policies are among most important factors determining domestic
price developments. Due to diferent production and trade characteristics of the CIS coun-
tries covered in this study, domestic price developments difer between the selected countries
(Figure 2 . Thus, wheat prices in Armenia, Azerbaijan, and Georgia, three wheat importing
countries, are higher compared to the CIS average. On the other hand, wheat prices in Russia
and Ukraine, two large wheat exporters, are on average lower compared to the average CIS
prices and selected international prices. The most extreme case is Belarus, where the domestic
government keeps wheat prices at an artiicially low level to support domestic meat pro-
duction [ ]. Furthermore, wheat producer prices in the whole CIS region were afected by

Figure 2. Average wheat price level in the CIS countries and selected international markets base . Source
Statistical oices of the respective CIS countries [ , ], own illustration.
146 Agricultural Value Chain

wheat export restrictions imposed by Russia, Ukraine, and Kazakhstan between and
[ ], which ultimately had a strong efect on consumers and overall food security in
these countries.

The analysis of market integration indicates that the CIS wheat markets are strongly inte-
grated within the region integration between CIS countries and with the EU i.e., France
and world markets i.e., USA Figure 3 . Surprisingly, integration in world wheat markets is
highest amounting to about %. Regional wheat market integration lies by on average %,
and integration with the EU wheat market lies by %.

Figure 4 provides a detailed overview on the patern of market integration. On the regional
level, Georgia and Moldova are strongest integrated with the other CIS countries Figure 4 .
Moderate regional integration is recorded for Armenia and Azerbaijan, countries that are
heavily dependent on wheat imports from other CIS countries. A moderate level of integra-
tion might indicate certain market ineiciencies, which might be connected to certain market
regulations set by the government, for example, in the case of Azerbaijan.

The integration of the CIS countries within the CIS regional market is very similar to their
integration in the EU market and the world market. The main reason is that both markets,
EU and world, are used as reference markets for price negotiations in wheat trade by CIS
traders. Price discounts or mark-ups might result from quality diferences and internal price
determining factors. It is striking that the Ukrainian wheat market has stronger integration
with world markets compared to the EU. Overall, the Russian, Ukrainian, and Moldavian
wheat markets are strongly integrated with both the EU and world markets. These results
are in accordance with the trade status of these countries. Namely, Russia and Ukraine are
large wheat exporters not only in the CIS region but also on the international level as well.
Thus, international price changes have a great impact on their domestic producer prices. On

Figure 3. CIS wheat market integration aggregated level. Source Own calculation based on the estimation results, own
illustration.
 Agricultural Market Integration in the Commonwealth of Independent States: What Are the... 147
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Figure 4. CIS wheat market integration disaggregated level. Source Own calculation based on the results, own
illustration.

the other hand, Moldova is also an exporting country but with no signiicant relevance for
the regional and international wheat trade. It is interesting to observe that there is almost no
integration between Kazakh and international wheat markets. The main reason is that Kazakh
wheat export is mainly concentrated on Central and East Asian countries, and thus, Kazakh
domestic prices do not react much to price shocks from the Western markets.

4.2. Pork

The -year pork price averages presented in Figure 5 indicate that the CIS prices are higher
than the prices on the EU i.e., Denmark, Germany, and Spain and world markets i.e., Brazil
and USA . For the Customs Union members i.e., Belarus, Russia, and Kazakhstan , we can
observe that Russian pork prices are at the level of the CIS average price but by and %
higher than the average Belarussian and Kazakh prices, respectively. The Belarus price level
is not relecting actual market conditions but is rather the result of the price targeting by the
Belarussian government [ ].

The results of the price transmission analysis indicate that the CIS countries are on average well
integrated with both regional and international pork markets. The highest integration level is
recorded with the EU market where we observe full transmission of price shocks Figure 6 .
Besides the EU, regional markets seem to be very well integrated among each other, where
about % of the price shocks are transmited in the long run. In particular, regional mar-
ket integration is very strong between Belarus, Russia, and Kazakhstan. International market
price shocks are only by about % transmited to the domestic markets in the CIS countries.
Obtained results are in accordance with the CIS pork trade developments where we observe
that % of the total CIS pork import for selected CIS countries originates from the EU.
148 Agricultural Value Chain

Figure 5. Average pork price level in the CIS countries and selected international markets base . Source
Statistical oices of the respective CIS countries and [ ], own illustration.

Figure 6. CIS pork market integration aggregated level. Source Own calculation based on the estimation results, own
illustration.

A cross-country comparison of the price transmission results is presented in Figure 7. As

already mentioned, our results indicate highest integration of the CIS pork market with the
EU. This is certainly the case for Belarus, Russia and Kazakhstan, members of the Customs
Union, for which we found full transmission of price shocks from the EU market in the long
run. These results are not surprising considering that Belarus, Russia, and Kazakhstan import
, , and %, respectively, of their total pork import from the EU. On the other hand,
Belarus, Russia, and Kazakhstan have a very low level of integration with other CIS coun-
tries. Concerning market integration with the international markets Figure 7), our results
 Agricultural Market Integration in the Commonwealth of Independent States: What Are the... 149
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Figure 7. CIS pork market integration disaggregated level. Note Missing marker means no integration with the
respective market. Source Own calculation based on the results, own illustration.

indicate strong integration of Georgian and Armenian pork markets, while Belarus, Russia,
and Kazakhstan show very weak integration.

4.3. Beef

The -year beef price averages presented in Figure 8 indicate that the average CIS prices
are % lower than the EU price i.e., EU average price but are similar to the price level of
the world markets i.e., Brazil, Uruguay, USA, Argentina, and Australia . Armenia, Russia,
and Kazakhstan have the highest beef prices, which are , , and % higher than the CIS
average prices, respectively. Our data indicate that Ukraine has relatively low beef prices
compared to other CIS countries, the EU and the world market, with the price level about
% lower than the CIS average. Overall, the data presented in Figure 8 show signiicant dif-
ferences in average beef prices between the CIS countries.

Our price transmission results indicate very strong integration of CIS beef markets both
regionally and internationally. We ind that price shocks are perfectly transmited from the
EU market and by % from the world market to the CIS countries on average. But even
regional integration is high amounting to % of the CIS on average Figure 9 .
The cross-country market integration results on the disaggregated level presented in Figure 10
indicate that Kazakhstan and Belarus are strongly integrated with other regional markets. A
moderate level of regional integration is recorded for Russia, while Georgia seems not to be
integrated with other regional markets in the long run. Concerning market integration with
the EU, our results indicate almost full transmission of price shocks in the long run. In con-
trast, our results do suggest no market integration of the Ukrainian market with the EU.
150 Agricultural Value Chain

Figure 8. Average beef price level in the CIS countries and selected international markets base . Source
Statistical oices of the respective CIS countries and [ ], own illustration.

Figure 9. CIS beef market integration aggregated level. Source Own calculation based on the estimation results, own
illustration.

4.4. Poultry

The -year average poultry prices presented in Figure 11 indicate that the CIS prices are %
lower than the EU price i.e., Netherlands and Germany and are similar to the world mar-
ket price level i.e., Brazil and USA . This is especially the case for Georgia, Ukraine, and
Kazakhstan, where prices are below the CIS average. In contrast to pork and beef prices,
poultry prices are not characterized by a great dispersion for the observed period.
 Agricultural Market Integration in the Commonwealth of Independent States: What Are the... 151
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Figure 10. CIS beef market integration—disaggregated level. Note Missing marker means no integration with the
respective market. Source Own calculation based on the results, own illustration.

Figure 11. Average poultry price level in the CIS countries and selected international markets base . Source
Statistical oices of the respective CIS countries, own illustration.

Concerning the price transmission analysis, our results indicate that the CIS poultry mar-
kets are integrated regionally, with the EU and with selected international poultry markets.
Strongest integration is recorded with the EU market, where 73% of the price shocks are
transmited to the domestic CIS markets in the long run Figure 12 . Moderate transmission
is recorded from regional markets, while relatively slow transmission is recorded from the
selected international markets.

The results from the disaggregated cross-country comparison indicate that the Russian poultry
prices are strongly integrated with both regional and EU poultry markets, where we observe
152 Agricultural Value Chain

almost full transmission of price shocks (Figure 13 . However, our results of Ukraine indicate
no market integration with regional and EU poultry markets.

4.5. Milk

For investigating the country-level assessment of CIS milk market integration, we focus on
the milk powder prices [i.e., whole milk powder WMP ] rather than on luid milk prices.

Figure 12. CIS poultry market integration aggregated level. Source Own calculation based on the estimation results,
own illustration.

Figure 13. CIS poultry market integration disaggregated level. Source Own calculation based on the results, own
illustration.
 Agricultural Market Integration in the Commonwealth of Independent States: What Are the... 153
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Figure 14 shows the estimated -year WMP price averages for the CIS countries. Compared
to selected EU markets i.e., EU average price, Netherlands, and Germany and world mar-
kets i.e., Oceania , estimated CIS average prices are by on average % lower. The highest
WMP prices are recorded for Russia and Kazakhstan % above the average , while the low-
est prices are recorded for Belarus % below the average . Armenian and Ukrainian WMP
prices are almost at the level of average CIS WMP prices.

The price transmission results indicate relatively moderate integration of the CIS WMP mar-
kets with both regional and selected international markets (Figure 15 . The results from the

Figure 14. Average milk price level in the CIS countries and selected international markets base . Source
Statistical oices of the respective CIS countries and [ ], own illustration.

Figure 15. CIS whole milk powder market integration aggregated level. Source Own calculation based on the
estimation results, own illustration.
154 Agricultural Value Chain

cross-country comparison indicate that the Kazakh WMP market is strongly integrated with
the regional markets, where we observe almost full transmission of price shocks Figure 16 .
The Russian WMP market is strongly integrated with the EU market where we also observe
almost full transmission of price shocks. Changes from the selected international market i.e.,
Oceania are transmited to the Russian and Kazakh markets to the higher degree compared
to other CIS countries (Figure 16 .

4.6. Summary of market integration results

The results of the price transmission analysis Figure 17) indicate strongest market integration
of the CIS beef market with all three reference markets, i.e., regional CIS, EU, and the world
market. As already mentioned, one of the main reasons for almost full transmission of price
shocks from reference markets to the domestic CIS markets might be the fact that beef mar-
kets in CIS countries have lowest level of price protection compared to other products [ ].
The observed strong market integration of the CIS pork markets with the EU market might
result from comprehensive pork imports trade lows from the EU until . Similarly,
signiicant pork trade between Belarus, Russia, and Kazakhstan, supported by the removal
of trade barriers within the Customs Union, contributed to the rather strong regional pork
market integration of the CIS countries.
The strong integration of the CIS wheat markets with the world market is might be explained
by two main factors Russia and Ukraine have advanced to global leaders in wheat trade

Figure 16. CIS whole milk powder market integration—disaggregated level. Note Missing marker means no integration
with the respective market. Source Own calculation based on the results, own illustration.
 Agricultural Market Integration in the Commonwealth of Independent States: What Are the... 155
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Figure 17. CIS market integration by product. Source Own calculation and illustration.

and thus have a strong inluence on world wheat prices World market prices are used as
a benchmark price for regional wheat trade among CIS countries.
Considering that none of the CIS countries is a large poultry and whole milk powder importer
or exporter and thus not a signiicant player on the world market, market integration is lower
with the world market compared to EU and CIS regional markets. The EU market prices
are used as a benchmark for negotiating poultry and whole milk powder trade between CIS
countries.

Overall, all selected CIS markets are well integrated with the EU market due to market
proximity and signiicant trade lows supported by numerous bilateral trade agreements.
Integration with world markets is strong for products where CIS markets are large exporters
e.g., for wheat or importers e.g., for beef . Regional market integration greatly depends on
trade volumes, infrastructure issues, and market barriers i.e., removal of tarifs within the
Customs Union .

5. Determinants of the CIS market integration

Diferences in market integration observed between regions or countries might result from
the inluence of a variety of diferent factors. In the following, we link major inluencing fac-
tors, in particular, the level of domestic market support, trade policies, the size of physical
trade lows, infrastructure, and bilateral or multilateral trade agreements with our results on
market integration of the CIS countries.
156 Agricultural Value Chain

First, market support and trade-oriented policy measures have a strong impact on market
integration [ ]. For markets characterized by a high level of state support, the results indicate
moderate or even no integration with international markets. This is especially the case with the
CIS pork and poultry markets. On the country level, Belorussian atempts to support livestock
production by strongly regulating grain prices is one of the main reasons why the Belorussian
wheat market is not integrated with any of the reference markets. On the contrary, CIS mar-
kets with almost no state support, such as wheat and beef markets, are strongly integrated
with international markets. Besides direct state support, sudden changes in CIS trade poli-
cies are signiicantly afecting CIS market integration. In particular, numerous export-oriented
measures e.g., export bans, export taxes, or export quotas were implemented on CIS wheat
markets in the last decade. The results for Russia and Ukraine indicate that wheat export
restrictions signiicantly decrease the level of market integration and thus the transmission
of price changes from international reference markets to domestic markets [ ]. Furthermore,
the decrease in price transmission is higher for regions within a country that are strongly
integrated with international markets when trade is freely possible e.g., North Caucasus for
Russia and Odessa for Ukraine .

Second, the size of physical trade lows and the importance of the reference market for global
trade e.g., US wheat price play an important role for market integration of the CIS countries.
Strong regional integration of the CIS countries is based on the fact that Armenia, Georgia,
and Azerbaijan are among the largest CIS wheat importers with wheat imports almost com-
pletely originating from other CIS countries i.e., Russia, Ukraine, and Kazakhstan . At the
same time, these countries have strong integration with international markets as well. We
argue that price information coming from the main international markets is used by regional
CIS traders as a benchmark for negotiating prices in regional trade. Similar considerations
could be used for explaining strong market integration between CIS pork markets with
regional and EU markets.
Third, underdeveloped infrastructure presents a great obstacle for the market integration
of many CIS countries. This is especially visible on a disaggregated country-level analy-
sis. Diiculties to obtain suicient railway wagons, small capacity of port terminals on
the Caspian Sea, and underdeveloped national roads signiicantly contribute to low mar-
ket integration of the Kazakh wheat market with international markets. Besides a deicient
grain transport infrastructure, large distances between grain producing and consuming
regions strongly inluence the degree of market integration of diferent regions in Russia.
Infrastructural problems are also one of the main factors inluencing market integration of
Caucasian countries i.e., Armenia, Azerbaijan, and Georgia with the EU and international
markets.

Fourth, strengthening trade relations through bilateral or multilateral trade agreements sig-
niicantly contributes to market integration of the CIS countries. The establishment of the
Eurasian Customs Union (EACU) facilitates the trade process between Belarus, Russia, and
Kazakhstan. The results indicate that the EACU members have almost identical regional and
international levels of integration. This is especially the case for pork markets. In addition, the
results indicate strong market integration of CIS pork, beef, poultry, and milk markets with
 Agricultural Market Integration in the Commonwealth of Independent States: What Are the... 157
http://dx.doi.org/10.5772/intechopen.69869

the EU. The main reason for almost full transmission of price shocks from the EU markets
might be associated to numerous bilateral trade agreements between the EU and almost all
CIS countries.

6. Conclusions

In this chapter, we have analyzed to which extend selected CIS markets are integrated in
regional and world agricultural markets.

Based on a unique data set which we have created utilizing a wide variety of diferent data
sources available for the CIS countries, we have conducted the analysis for the wheat, meat
i.e., pork, beef, and poultry , and milk markets. The selected markets represent the most
important agricultural sectors of the CIS countries. Well-functioning eicient agricultural
markets are essential for food security in the CIS countries and are thus of great interest for
policy makers.

The results of the price transmission analysis indicate that regional integration within the CIS
is strongest for pork and beef, followed by poultry and whole milk powder. The integration of
CIS markets in world agricultural markets is strongest for wheat and beef, whereas it is rela-
tively low for pork and poultry. All in all, beef markets in the CIS countries are the strongest
integrated within the region, with the EU and the world market.

Overall, our results indicate that domestic market support and trade policies, physical trade
lows between countries, infrastructure, and bilateral or multilateral trade agreements play
a key role in market integration of the CIS countries. First, our results indicate that markets
characterized by a high level of state support, integration with international markets is weak
or even a lack of integration is observed compared to markets where market support mea-
sures are absent. Second, our results indicate that CIS markets might be well-integrated with
both regional and international markets due to the fact that regional integration is more con-
nected to the physical trade lows import dependency , while integration with international
markets is more based on deining the benchmark price for the products that are traded on
the regional level. Third, for most of the CIS countries, underdeveloped infrastructure signii-
cantly reduces market integration. Fourth, strengthening trade relations through bilateral or
multilateral trade agreements signiicantly contribute to market integration of the CIS coun-
tries. That is especially the case for members of the Eurasian Customs Union and CIS agree-
ments with the EU.

Acknowledgements

Research project supported by the European Commission under the th Framework Progra
mme Exploring the potential for agricultural and biomass trade in the Commonwealth of
Independent States www.agricistrade.eu .
158 Agricultural Value Chain

Appendix. List and classiication of countries

Domestic markets World regional World reference markets

markets

Countries CIS CIS EU World

Armenia x
Azerbaijan x
Georgia a
x
Belarus x
Moldova x
Kazakhstan x x
Russia x x
Ukraine a
x x
France x
Denmark x
Germany x
Netherlands x
Spain x
Oceania x
Brazil x
Australia x
Argentina x
Uruguay x
USA x
a
Although Georgia and Ukraine are no longer CIS members, in this study, we still refer them as CIS countries due to their
tight regional trade connections with other CIS members.

Author details

Ivan Djuric*, Linde Göz, Miranda Svanidze and Thomas Glauben

*Address all correspondence to djuric@iamo.de

Leibniz Institute of Agricultural Development in Transition Economies, Halle Saale , Germany

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 Chapter 9

The Struggles of Smallholder Farmers: A Cause of

Modern Agricultural Value Chains in South Africa

Wolfgang Johann von Loeper, Scott Drimie and

James Blignaut

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.75710

Abstract
The potential of sustaining smallholder farmers (SHFs), for long-term food security
remains, within the context of rising modern food value chains, particularly in Africa, a
threat. Support for a greener, lower carbon economy that creates jobs and improves
human well-being as part of a sustainable and socially inclusive stable economic develop-
ment should be driven, at least in part, by SHF.
To not disrupt African SHF, but rather support an economic inclusion of them in times of
rising modern food value chains, requires an understanding of existing modern agricul-
tural value chains, their functioning and constraints; taking South Africa (SA) as an
example that has already seen a strong modernization of its value chains over the last
30 years. Several key questions arise: What are the main shortfalls in agricultural value
chains and why are SHFs faced with challenges to feed into such existing structures? What
blockages do value chain participants (VCP) themselves identify and how do these further
entrench such blockages? From understanding VCPs, where must policy focus for a more
inclusive farming system and better food security?
The empirical data we collected from an ethnographic qualitative participant research
showed that interviewed VCPs are limited in acting within their economic constraints. We
also gained sufficient evidence supporting the view that in contrast to the current struggles
and spectacular failures VCPs have experienced with SHF, there is inherent continued
willingness to engage with SHFs if risk and limitations were reduced and exposure was
mitigated, through the establishment of comprehensive cooperative leadership and field
extension that enabled reliability of production quantity and quality from SHF.

Keywords: smallholder farmers, food security, agricultural finance, inclusive

socio-economics, food safety, land ownership

© 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative
Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited.
162 Agricultural Value Chain

1. Introduction

Globally, IAASTD [1] counts 90% of farms to be SHF with less than 2 ha of land; similarly, the
Food and Agricultural Organization [2] counts 92.3% of all farmers to be small farms of which
83% are less than 2 ha in size. These SHFs still supply the bulk of food to the global population.
South Africa (SA) in contrast has an average farm size of 1400 ha [3]. None the less, 1.6 million
citizens (3% of population) are engaged in some form of farming, of which 162,000 are
considered formal rural farms whereof only 30,000 are commercial farmers that supply more
than 80% of the food in South Africa [4].

With its mere 0.3% of the population involved in formal rural farming, SA has, compared to
developing countries, a much more developed nation structure [5]. Merely 0.06% of the
population makes up South Africa’s commercial farms [4] and considering a global population
of 7 billion with 500 million farmers [2] SA contributes 24 times less to the count of global
farmers than it contributes to global population. Still 26% of its population lives in food
insecure conditions [6, 7]. For Africa the development of modern agricultural value chains
therefore poses a challenge to SHF and SA should be used as a study example, investigating
the functioning of such value chains and the threat of a potential economic exclusion of SHF
across the African continent.

Africa’s SHFs mostly practice low external input and organic agriculture [8, 9]. They sit on
small parcels of land with high genetic diversity and under such conditions Altieri et al. [10, 11]
argue they have less environmental impact than high external input (HEI) agriculture, as
practiced by commercial industrialized farms [12–14]. Soil water conservation practices by
these farmers are important for increased yields with significant benefits showing particularly
in heat and drought stressed areas and Marenya and Barrett [15] argue that integrated natural
resource and soil fertility management have positive feedback on SHF household wealth.
Organic farming is ideally suited to SHFs say Hine and Pretty [16] because it relies on naturally
available fertility inputs, requires less operating costs, delivers more diversity, and is more
resilient to plant stress [16].

These SHFs are less dependent on large multinational corporations for input supplies [11],
allowing developing nations to support a less import dependent trading system; whose trade
arrangements otherwise typically favor larger farming operations. Because SHFs produce food
more organically they can regionally supply crops of higher nutritional value [17–21]. Ponisio
[22] argues that organic crops need not be less productive and can still produce between 91
and 96% that of conventional farming [22]. Other research shows that it can also outperform
synthetic fertilizers on the continent, increasing yield 2–3 times while remaining drought
resilient, produce less CO2 and use 2–7 times less energy [22–24].

While social challenges persevere, environmental degradation, disturbed ecosystems, loss of

topsoil, modern human sicknesses, large CO2 emissions [13, 25–28], all due to large scale
industrialized conventional agricultural that form the foundation of our modern food system
complex, add to the problems and raise the question of whether our food system sustains
 The Struggles of Smallholder Farmers: A Cause of Modern Agricultural Value Chains in South Africa 163
http://dx.doi.org/10.5772/intechopen.75710

long-term food security or rather puts it at risk for the benefit of a few large system operators.
This lends weight to the argument that SHFs are a good possible route to a socially and
ecologically just and intensified agricultural systems, with the potential, as Wigging [29]
argues, to produce more food per hectare than large farms.
Yet, as Baiphethi and Jacobs [30] contend, only 10% of food for South African households is
sourced from subsistence production. The best way in enhancing access to food is through
subsistence and SHFs’ food production, and because that access is direct, it would also drive
down food prices [30].
South Africa’s government focuses on giving prospective farmers access to land through
politically contentious land claims, and is assisting them to become larger commercial
operations [31]. This has arguably resulted in a host of projects generally conceived as being
unsuccessful. Aliber and Hall [32, 33] argue that instead of considering the base of SHFs as a
source for building emerging black commercial farmers and focusing on a few expensive
projects, efforts against massive unemployment and poverty should instead leverage the
large numbers of subsistence farmers in regions with already existing smallholder farm
concentrations in South Africa and to invest into these areas for adaptation, diversification,
employment and better food security. This includes, they say, new and more refined market
linkages with wider access to supermarkets, decentralized agro-processing supporting small-
scale farmers, promotion of land rental and a more participatory approach to agriculture
[32, 33].
We argue that SHFs are, by nature, already entrepreneurial in that they produce more than
they can eat and sell their excess crops on informal markets and roadsides for economic gain.
This entrepreneurial nature can effectively be leveraged by government to increase yields, on
today still underperforming yield outputs of SHF.

1.1. Problem statement

SHFs in South Africa struggle to survive and participate in food value chains, which currently
maintain a flow of capital funds through a few large VCPs to a few selected and preferred
large crop producers. Not being able to take part in these value chains means exclusion from
the capital markets and a general struggle for economic survival, while rural areas remain with
the stigma of low opportunity for young people. The system fails SHF on multiple levels, but
mostly on access to education, land, technology, market, and financial services [34].

1.2. Research objective and methodology

In this manuscript we identify existing blockages SHFs face in participating in modern agri-
cultural value chains in SA, as well as which institutions, policies, and VCPs are responsible for
such blockages. What blockages do VCPs experience themselves through circumstances exac-
erbating access problems and how do feedback loops in existing value chains further entrench
obstructions inhibiting a participatory framework for SHFs?
164 Agricultural Value Chain

This study was undertaken as an ethnographic research exploring business cultures and
morals using qualitative semi-structured interviews. The selected research participants (VCPs)
were based on their involvement in the food value chain and their general size and importance
they played; they were not from any particular commodity type, however, because we also
interviewed silos and millers of maize, answers from these VCP often hinged around maize,
also a main crop type in South Africa [35].

The interviews were then transcribed to attain primary qualitative data and for the coding and
categorizing we used grounded theory as an inductive systematic methodology to analyze
qualitative data and give it conceptual structure through categorization of general themes
emerging from the data [36–39].

2. Existing knowledge on challenges facing SHF

2.1. Smallholder farmer challenges in accessing micro-loans

In the view of Delgado [40] barriers arise primarily because markets fail to present solutions,
such as micro-credit, to rural African populations. Kirsten and van Zyl [41] argues that credit
availability, among others, is either imperfect or missing as accessible service to SHFs, while
Ortmann and King [34] argue that high transactional costs for VCP is also due to language
barriers; only 36% of SHFs spoke English in two regions in KwaZulu-Natal. Thirty six
percent small-scale producers in South Africa, farming on less than 2 ha land, indicated that
missing access to credit was the biggest hurdle why they would not be able to access water
for irrigation [42].

Bain & Company [43] illustrate examples of other tried and tested models with a list of best
practices that underlie the success factor for scalable operations supplying micro-lending that
was developed by the Grameen Bank. Swilling [44] criticizes Grameen Bank replicas, saying
that such systems either need a critical mass of over 2 million members to finance bureaucra-
cies, or otherwise charge high interest rates. In contrast Blewitt [45] compares the Grameen
Bank’s principles of loan business to that of Green Entrepreneurship.

Naess et al. believe it is more the responsibility of the government to make farming profitable
for SHFs, and ensure access to land, water, and other inputs such as seeds and “approcredit”
(appropriate credit) are available [46]. They criticize micro-loans in that they are too small and
maintain a micro-status, limiting operational growth and appropriate infrastructure invest-
ment. They do not enhance labor’s dignity nor do they raise the farmer’s negotiation power
against traders, or the ability to invest into storage and packaging to add value, altogether
being unable to lift the farmer out of poverty [46].

2.2. Smallholder farmer challenges to accessing insurance

Kirsten and van Zyl [41] argue that access to insurance is imperfect or non-existent for small-
holders. Many smallholder households in Lesotho do not have any form of insurance [47].
 The Struggles of Smallholder Farmers: A Cause of Modern Agricultural Value Chains in South Africa 165
http://dx.doi.org/10.5772/intechopen.75710

Because insurance is hardly affordable in developing countries, only 1% of households in low

income countries have catastrophe coverage [48].

Linnerooth-Bayer and Mechler also argue that with climate change, associated risks insurance
for SHFs will become more important. To Challinor et al. [49], SHFs are expected to have a
greater exposure to climate risk due to increased variability of crop productions and the
absence of well-functioning crop insurance services. In order to increase SHFs’ resilience, the
establishment of alternative insurance schemes are required [49]. An example is Juhudi Kilimo
in Kenya that adds insurance to its livestock loan at 4% of animal value to protect both itself
and the insured livestock against illness and death [43].

2.3. Smallholder farmer challenges in accessing markets

A reason why SHFs with sellable surplus crops stay trapped in poverty is the lack of access to
markets [50]. A few national retail stores have risen from 10% market share around 1990, to
60% today [51] and dominate the formal food market in South Africa [52]. Large retailers from
this “supermarket revolution” work with non-family, corporate agriculture to develop produc-
tion systems that, via audits, could claim attributes of environmental sustainability and food
safety [53].
Campbell criticizes that certification systems brought about by an “audit culture” that merely
serves the interests of retailers and poses considerable hurdles for third world producers, for
many of whom it is impossible to adhere to the compliance requirements [53]. While Qaim
and Rao [54] argue that this, together with more vertical integration and stricter standards
(developing nations’ following the pattern of developed nations), can have far-reaching
effects on rural development, Snider et al. [55] argue that certification system run through
cooperatives in Costa Rica had little financial benefits for the SHF and has induced no
widespread change.

Small producers not only face competition from larger and successively growing producers
in their own countries, but also from other countries through increased imports [56, 57]. A
large retailer in SA, Shoprite, procures 90% of its fresh fruits and vegetables from large-scale
farmers, while Angola’s Shoprite stores get 99% of their produce from South Africa. Pick n
Pay also sources 70% of their produce in Southern Africa, from South Africa [58]. On the
other hand SHF form the “structural backbone” of the rural economy [59], yet the pressure is
high on SHFs to adjust to shifts in technology and changes in the market, as well as
competition from imports, and if widespread exclusion is observed, SHFs will face difficult
times [59].
This will spell a disaster of “highest magnitude” argues Magdoff [60], particularly if the
“supermarket revolution” trend continues to drive out SHFs globally, a disaster not only for
billions currently involved with small scale agriculture Magdoff [60] (p. 116), but also for an
entire era of more expensive energy and climate change exacerbated by large industrial agri-
culture. Parker [61] says: They “… are, in the harsh terms of globalization, superfluous.”
Modern food systems place SHF on the edge of survival, while others see smallholder farming
increasingly as an essential route out of poverty [62].
166 Agricultural Value Chain

2.4. Smallholder farmers milling and agro-processing

Rural, low-income areas have small, informal traders to which SHFs sell. Supermarkets on the
other hand are able to undercut informal traders who are exposed to the risk of being ulti-
mately crowded out by supermarket stores, increasing the risk of SHF survival [5, 63]. How-
ever, Godfray et al. [64] argue that there is an opportunity for food security in poorer regions
with improved technology for small-scale food storage in a network of small scale traders,
millers and producers.
Mahlogedi and Thindisa [65] argue that agro-processing for SHF creates added value and has
the ability to improve the livelihoods of SHF. However, they also say that would require
sufficient human and social capital from the SHF.
Local and subsistence food production is the best readily available route to food security in
South Africa [30]. Baiphethi and Jacobs also believe that “rural households continue to value
the pursuit of farming activities and that subsistence production is important to improve
household food security” [30]. Similarly, Jayne et al. believe that any “realistic discussions of
poverty alleviation strategies in Africa need to be in the context of access to land, […] there is a
strong relationship between access to land and household income” [66].

3. Value chain research findings

Our research findings from the interviewed VCP are summed up as follows:

3.1. Banks

We interviewed four of the largest commercial banks in South Africa, all of whom have, in one
way or another, engaged with supplying credit to SHFs or emerging commercial farmers.
Their views around what constituted micro-lending or SHF loans, varied drastically, ranging
from loans of R500 for one bank to R100,000 for another bank. One bank said a R3m turnover
was a minimum limit.
While one bank had a classic agricultural micro-loan, all other banks did not have a product
tailored for SHFs. Two banks responded saying that SHF could use their bank’s private loans
of R500 instead of their classic agricultural loans which were designed for larger commercial
farmers. One bank had an engagement another large VCP, through which SHF could access
micro-loans for crop production.
The reasons why banks were unwilling to engage SHFs with products and services, they
argued that their commercial mandate was focused on larger commercial farms that had
collaterals, track records and economies of scale. Banks had an obligation, all respondents
said, to find out where risk reducing factors existed that constituted repayment ability and
affordability of the loan. This SHF with their experience, were not able to do. Access to decent
financial histories to support an application for a loan were generally missing, without which it
would be reckless lending and prohibited by the SA Credit Act.
 The Struggles of Smallholder Farmers: A Cause of Modern Agricultural Value Chains in South Africa 167
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Three of the four banks agreed with our question, whether crop in itself would suffice as an
alternative form of collateral, but they said it would then need to be attached to an offtake
agreements backed by an insurance that could pay the loan in case of failure.
The two banks that did not supply micro-loans said that access to common land would not
qualify them for loans, it would have to be documented land tenure in form of ownership or
lease agreements. Support in the form of a mentor, or a business development, most banks said
would also constitute a de-risk for them in their decision making of supplying micro-loans. To
them financial acumen mitigated production-, marketing-, and financial risks and would
validate the supply of future micro-loan products, if education were able to drive a change in
SHF mentality.

Historically, two banks had made bad experiences, where they had to write off debt: one bank
lost 60% of a R3bn exposure. Subsequently one of the two banks backed off from supplying
micro-loans and is not planning any new products tailored to SHFs. The other bank continues
to supply SHFs with micro-loans. This bank also indicated that there were a host of challenges
with micro-loans one being that their transaction costs were unprofitably expensive, making it
a philanthropic offering to their bank.
All banks agreed that certain processes, compliance requirements and general customer costs
they needed to bear made it unlucrative to serve very small loans. Getting FICA (Financial
Intelligence Centre Act) requirements in place for clients far out in rural areas compounded the
problem and with often missing identification documents, it would include having to establish
identity and domicile in rural Africa, this alone disqualified many applicants. As opposed to
one large farmer, with a R2m credit and little risk, 1000 SHFs with a credit each of R2,000,
would be hugely more expensive, and at the same time expose them to high levels of risk and
default because the loans were relatively unsecured.
One bank channeled their farmer micro-loan offering through their private loans division and
not the agricultural business loans. They said their loans were used to buy seeds, repay debt,
and to transport produce to market. First time applicants to their loans did not have it as easy
as second or third time applicants. First time applicants would typically start with R500 and a
tenure of 6 months, at prime plus 3%. In later rounds, the loans could increase to R1000 over
12 months and even up to R5000 with an established track record.

The three banks not supplying micro-loans argued that although they wanted to fund that
market space, there was no specific model that would make business sense. The fourth bank
that did supply micro-loans was offering it as a part of a total value offering and part of the
financial services charter, assisting emerging agriculture. In Kenya, these banks stated, it had a
successful micro-loan scheme because it had access to the applicants via cell-phone technology.
On our questions of government grants, one bank thought that knowledge and education were
factors that made a farmer productive and would be better than grants. That bank argued that
grants could kick-start businesses and create a success environment if applied correctly, but
criticized the government for running unsuccessful grant projects, due to the disjuncture
within government departments, that made SHF dependent on continued grant funding. Two
of the four respondents were of the opinion that the primary responsibility for developing
168 Agricultural Value Chain

emerging agriculture lay with the state and the Land Bank. In this light the Kula-Scheme was
also criticized for burdening their bank with bureaucracy in form of qualifying criteria and
project management.
The principle opinion of two banks was that, South Africa needed an integrated policy frame-
work, where the Land Bank, with an increased mandate for SHFs, and other organs of state, all
played a part in driving agricultural-entrepreneurship to alleviate poverty. Corporate social
investment (CSI) funding could assist, but currently is “wasted” money, as most of the projects
ended up as write-offs.
One bank suggested that the government could also institute a guarantee fund for commercial
banks to claim from, if bad debt and failures specific to this market occurred. Preferably, this
should work in combination with a farm-level two-year grant for inputs and education. Most
banks perceived existing extension offices to be unsuccessful, nonetheless, all banks believed
that a form of mentorship for life-, financial-, and farming skill was essential to make sure
money was utilized responsibly. The banks could not provide extension services, as they
would then take default risk to the loan they supplied.

Only one bank showed a concern around our question of land ownership. They suggested
the creation of a system that would enable SHF to have title deeds, which would develop a
local property economy where successful SHFs would be able to buy additional 2 ha close by.
Having title to their land would enable them to fully secure their facilities and grow their
business. This would create a spirit of entrepreneurship among SHFs this bank argued.
Another bank claimed that land ownership would help as a collateral, it was of less impor-
tance to them if other collaterals were in place, such as access to market and offtake, coupled
possibly to insurance.
Although all four banks quoted FICA and the Credit Act as posing challenges to supply micro-
loans to SHFs, only one bank suggested a change of that legislation. One bank argued that
policy makers should rather look for successes in other African countries where cooperatives
created successful farming ecosystem that enabled the successful supplying of micro-loans. A
government guarantee scheme for drought failure, for example, to de-risk banks, could work
through cooperatives and target not just one, but 20 or 30 farmers, with one collateral manager
who helped control production schemes. Cooperatives worked in the mind of this bank,
because of scale, where many SHFs pooled their maize together, reducing transactional costs
to market. The Land Bank could assist they said.
A cooperative, another bank believed, can be very important, if it is a commercial co-op with a
good existing integration into the value chain that can function as a service provider in terms
of information flow, technical expertise, and possibly a funds disseminator. This bank though,
also said that it was not necessary to pool every SHF into cooperatives, especially if the SHFs
had access to good local market they could serve.

3.2. Supermarkets

Our interview base covered three major retailers in South Africa, all of whom had some form
of engagement with SHFs or emerging farmers. The authors planned and conducted the
 The Struggles of Smallholder Farmers: A Cause of Modern Agricultural Value Chains in South Africa 169
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interview with senior employees of these organizations responsible for the purchasing of farm
produce.
One of the retailers said that they almost exclusively bought commercial volumes and that
SHFs were ever only going to be a very small part of that supply. They supplied reliable
commercial growers with growing programs to which both parties committed. A SHF in
comparison was an unreliable source for multiple reasons on which they could not rely. This
retailer also said that SHFs lend themselves to niche, high value, out of season production and
could make a success there. The new BEE code, requiring them to source more from SHF,
would change things dramatically, but would nonetheless pose a challenge to them.
The second retailer said that they worked with fresh produce SHFs, mainly in Limpopo,
through their formal pack-houses and central procurement. This retailer also said that they
allowed their store owners to procure, outside of their central procurement system, directly
from smaller farmers. This was mostly done without cooperatives being present, but neverthe-
less resulted in problems with consistency and uncoordinated supply, which the store owners
accepted because of the higher margins they made by procuring directly from SHF.
That retailer considered SHF farmers as ones with more than 5 ha of land, and they did not
think one could farm sustainably on 2 ha of land or less, other than maybe through a cooper-
ative system. For these SHF the food safety and quality requirements like Global GAP, Tesco
Nature’s Choice, or GFSI, are almost impossible to adhere to they said and therefore they
created their own “Local-GAP” for SHF as compliance capacity-building with a chance to step
up to Global GAP. All three retailers are concerned about SHFs ability to comply with food
safety standards, which was essential and needed to stay in place.
The third retailer claimed that they did not work with SHFs as their scale was too small and
that they would need to pool 50 or 60 farmers together and manage them to get the produce
they needed. They have had no SHFs projects in the past and are not planning any in the
future. While this was their cooperate approach they said, their individual franchises would be
able to procure directly from SHFs in their vicinity, which even then in their opinion would be
too small in scale.
In response to how government could get involved, one retailer said that government should
facilitate systems where successful commercial farmers mentored SHFs collaboratively along-
side a market access to retailers. To them, the retailers have the expertise, the network and
accountability, while the government has the money to facilitate such engagements.
The second retailer was of the opinion that there were three levels with which the government
should engage. First, to assist SHF in attaining finance, second, to raise the skill of SHFs to run
better farms and businesses, and third, to assist with entry level food safety and compliance
schemes.
The third retailer was of the opinion that money was not needed, and that it was the infra-
structure and system around SHFs that role players, such as banks, retailers, and especially
government, needed to create. This retailer said that it would need to be a whole number of
things that are required to fall in place, and that somebody needs to take control of and
manage it; best would be the government.
170 Agricultural Value Chain

3.3. Traders with silos and milling

Both interviewed traders were not buying from SHFs. They said they were mostly procuring
from other traders and only in a very few cases directly from usually larger farmers. The new
Black Economic Empowerment Code (BEE) in SA also did not require them to buy from SHFs.
While both traders said that they were not giving credits, seeds, or input supplies to SHFs, one
trader said that such support might be possible through their Enterprise Development
funding, but that there was additionally also a new department in the making that was going
to specifically focus on socially just procurement in the future for their company.

One of the traders said they would love to support small-scale farmers and pay them market-
related prices, but these would need to supply trucks loads of greater than 30 tons for effective
scale. For SHFs, getting to the market would be the biggest challenge, they said; they also did
not think that any other traders wanted to take any risk with SHFs.

On the question of how government could play a role, one trader said it could assist in
pulling together many small-scale farmers into a corporative, where it became viable to have
one contract with a community to buy 30 or 100 tons, where minimum truckloads were 35
tons to get the crop to Randfontein. The second trader said the government needed to
empower SHFs first, with subsidies to decrease input costs and secondly with field extension
to increase outputs. Other than that, this trader responded, the government should just stay
out of economics.

3.4. Insurers

We interviewed three of the largest insurers in SA, who together covered more than 80% of the
insurance market in South Africa. Two of the three insurers claimed that they already had a
product with which they served SHF, but with a focus on livestock and not crop insurance. The
third insurance company said that they currently had no micro-insurance product for SHF, but
that they have had engagements in the past. To this insurer the traditional underwriting model
suited commercial farmers and not SHF because historic data and proof of affordability on
their balance sheets was missing.

Nevertheless, this insurer indicated that they were busy with the Land Bank and the Interna-
tional Climate Insurance Fund to build a new product for SHF. Another insurer indicated that
it was busy with a National Emergent Red Meat Producers’ Organization (NERPO) and Grain
SA project. Generally, all three insurances agreed that there was not sufficient historic financial
data from SHF that would enable them to supply classical crop insurance. One insurer said
that the high capital backup requirement of 120% was costly to run even for commercial
farmers. The assessment of doing pre-emergence, post-emergence and loss-reporting further
drove up the costs, in particular for SHF. Subsequently two insurers were of the opinion that
the Financial Services Board (FSB) should deregulate indexed insurance which would vastly
reduce costs of supplying insurance to both commercial and SHF, in which case simple
climatic models would trigger pay outs. However, this would still need to be tested and two
insurers indicated that attaining meteorological data for rural SHF was in most cases very
difficult.
 The Struggles of Smallholder Farmers: A Cause of Modern Agricultural Value Chains in South Africa 171
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Two insurers also indicated that South Africa was one of the very few countries in the world
where the government did not subsidize agricultural insurance. One insurance said that the
government should think about subsidizing insurance as an alternative to a national backup
fund, as such a subsidy would be able to reduce the cost burden of the high backup capital to
be carried by the insurers. The private industry backup capital could replace the idea of having
a national backup fund and with that reduce costs of operating premiums. The fall-outs would
be easier to carry due to a potentially much larger client base, where even SHF could be served
easier.

Other mentioned challenges were the transacting of payments from and to SHF and the
expectations both parties had on and against a claim; unlike commercial farmers who under-
stood insurance concepts very well. Subsequently a cost-effective service delivery is a chal-
lenge, particularly on products of less than R100, where agents would make next to no money.

4. Discussion

4.1. Summary of data

The collected qualitative data was transcribed and systematically coded and categorized using
grounded theory methods to gain structure of more quantitative nature, summed up here into
two tables (Table 1, Table 2):
While 77.1% of surveyed VCP do not engage with SHFs today, the willingness to engage in
future with SHFs is three times the current engagement. This willingness was limited to the
assumption that other VCPs would also start to engage SHF more than they did now. In other
words a collective effort would entice a joint effort supported by 2/3rd of all VCPs.
Of all limitations landownership is the last issue why VCP do not to engage with SHF.
However, relative to other limitations a higher standard deviation indicates that, in particular
Banks disagree, which is understandable, as they use land ownership as collateral. Second
least important to the financial institutions were FICA, credit act and FSB regulations. More
important are compliance with food safety and Gap standards; both banks and retailers vote

Serving SHFs today? Serving SHFs in future?

SHFs Yes (%) No (%) Yes (%) No (%)

Banks [4] 25.0 75.0 50.0 50.0

Insurers [3] 66.7 33.3 100.0 0.0
Traders [2] 0.0 100.0 50.0 50.0
Retailers [3] 0.0 100.0 66.7 33.3
TOTAL 22.9 77.1 66.7 33.3

Table 1. Serving SHFs today and tomorrow?

172 Agricultural Value Chain

Limitations experienced by both SHFs and VCPs

SHFs Funding Land Education Logistics Compliance FICA, credit Access to Cooperative
(%) ownership (%) (%) (%) act & FSB (%) market (%) leadership
(%) (%)

Banks [4] 87.5 50.0 100.0 90.0 95.0 50.0 88.3 90.0
Insurers [3] 80.0 33.3 86.7 80.0 53.3 66.7 71.1 80.0
Traders [2] 90.0 0.0 90.0 70.0 60.0 n.a. 80.0 100.0
Retailers [3] 66.7 33.3 73.3 100.0 93.3 n.a. 88.9 90.0
TOTAL 81.0 29.2 87.5 85.0 75.4 58.3 82.1 90.0
In 10.5 21.0 11.0 12.9 21.8 11.8 8.4 8.2
agreement
(stdev)

Table 2. Limitations inhibiting both SHFs and VCPs.

them as second most important. All interviewees agree that cooperative leadership is the most
important limitation that SHF and their own institutions face. Ma and Abdulai [67] have also
shown in their studies that cooperative membership has a significant positive impact for SHF
on yields, net returns and household incomes.
Next important to all interviewees are education and logistics and after that access to market
and funding where for both the VCPs also seem to agree, with a small standard deviation.
The reader must keep in mind that due to the concentration of large organizations in the South
African value chain the sample size is relatively small. However, the comparatively low
standard deviation lends value to the research findings; in particular, where more than 80%
of VCPs agree that cooperative leadership, access to market, education and funding are the
most important limitations that need solutions.

4.2. Policy debate

While some VCP had “spectacular” failures working with SHFs in Africa, most do not engage
SHFs to avoid risk. However, the willingness to engage SHFs in future within a more func-
tional economic system favoring SHFs is high.
From our categorized limitations, all limitations increased the risk for any of the VCP to
engage with SHFs. Subsequently reducing the exposure to risk for VCPs is likely to create a
more interesting environment for them to working with SHFs. Policy therefore should focus
on risk reducing concepts and limitations as prioritized in Table 2.
Within the current legal framework of the Credit Act, the rulings for insurance pay-outs by the
Financial Services Board (FSB), and FICA, the financial industries, banks and insurances are
limited to serve larger commercial farms and forced to ignore SHFs. Yet more important to the
financial services as well as the traders and retailers were limitations related to cooperative
 The Struggles of Smallholder Farmers: A Cause of Modern Agricultural Value Chains in South Africa 173
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leadership, access to market, education, funding, and also logistics. Compliance to food safety
standards was a very important limitation to banks and retailers. All these limitations were
more important to the VCPs than legislative and regulative requirements or land ownership.
This raises the question, whether the SA, and other African, governments’ policies are on an
effective road by largely focusing on land ownership, often politically contentious. To all VCPs
land ownership was by far the smallest concern. Even to banks, to whom an obvious de-risk
factor is land as a collateral, land tenure with the ability to create profit was more important to
them than land ownership, which neither is a guarantee for good land custodianship nor
profitability. Lease agreements from communal land in a more traditional environment would
be sufficient to the banks. The concept of dropping land ownership policies in favor of
communal lease tenure and cooperative engagement with commercial farmers pose a chal-
lenge to many policy makers in SA, as most commercial farmers are considered historic rivals.
Blignaut et al. [68] found in their field report, that only 1.8% of their respondent thought that
landownership for emerging farmers was an important part for policy considerations.
Understanding the challenges of the system from all conducted interviews, for government in
particular, we can say policy should focus on cooperative leadership in combination with
larger commercial farmers and off-takers to solve limitations in form of access to market and
logistics. Making funding available, for such new systems, that did not create SHFs dependen-
cies on grants, together with education would have the potential to solve the most important
problems facing SHFs. If education were then additionally to focused on low external inputs
and agroecological principles, reducing the need for expensive inputs, it would not only
reduce the dependency on multinational corporations, their product imports and complicated
logistics, it would increase local food sovereignty and reduce the risk of engagement for
financial institutions due to less credit needs.
Such a systems approach would likely raise the interest of existing VCPs to engage with SHFs,
because as risk reduces, a chance for profitability increases. Two-third of all VCPs have
indicated that they would increase their engagement within months after they saw risk was
reduced and other VCPs started working with SHFs. However, any such commercialization
effort to Poole et al. [69] should have a decided mindset and must consider local complexities
in order to get into the “hearts and minds” of the SHF, as otherwise it may not be an attractive
profession to pursue or make a success of.

5. Conclusion

We have challenged the notion whether South Africa’s current food system has the ability to
sustain long-term food security, in which the existing food complex dictates the flow of
economies and favors large industrialized agriculture, while marginalizing small and micro-
food producers. We furthermore argue that other African countries, in a development drive to
modernize food value chains, should not exclude SHFs from benefitting as well, as there is a
lot of food security potential residing with SHFs. Yet, as our interview results have shown,
174 Agricultural Value Chain

there are a host of systemic challenges resulting in a broad-based resistance from multiple
industries, particularly within the SA value chain to engage with SHFs.
Being unable to take part in these value chains, ranging from missing access to input products,
micro-loans, micro-insurance, education and market, means an exclusion from revenue poten-
tial resulting in a general struggle for economic survival. Nevertheless, as we have argued in
our literature review, there is a residing entrepreneurial nature within South Africa’s SHF that
offers a great potential that could be leveraged.
On the other hand, we have risk averse VCPs avoiding SHF because of high perceived risk or
failures made through own experience. Nonetheless, most VCPs remain very interested to
increase engagement with SHF in future, if a new system reduced the risk. We have shown
how government could reduce the most important risks and limitations, which in order of
importance are: cooperative leadership (90%), education (88%), logistics (85%), access to mar-
ket (82%), funding (81%), and food safety compliance (75%); all of which were perceived by the
interviewees as more important than legislation, regulatory requirements and land ownership.

As economic viability is more important than land ownership, which is not a guarantee for
proper land custodianship and profitability, government should rather focus funding and the
establishment of cooperative leadership in conjunction with existing commercial farmers that
assists with access to markets, logistics, plus education through field extension on how to
practice low external input farming methods that reduce risk and the need for credit and
imported input products, while increasing food resilience in rural areas and economic viability
of SHF.

Appendix

Diagram 1.
 The Struggles of Smallholder Farmers: A Cause of Modern Agricultural Value Chains in South Africa 175
http://dx.doi.org/10.5772/intechopen.75710

Author details

Wolfgang Johann von Loeper1*, Scott Drimie1 and James Blignaut1,2

*Address all correspondence to: wolfgang@mysmart.farm

1 School of Public Leadership, Stellenbosch University, Stellenbosch, South Africa

2 South African Environmental Observation Network, Pretoria, South Africa

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 Chapter 10

Integration of Small Farmers into Value Chains:

Evidence from Eastern Europe and Central Asia
Jon H. Hanf and Taras Gagalyuk
Jon H. Hanf and Taras Gagalyuk
Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.73191

Abstract
The economic breakdown of the early transition process weighed heavily on food supply
relationships in the Eastern European and Central Asian (EECA) countries. Small and
medium-sized farm suppliers and processors sufered from lack of necessary produc-
tion inputs whereas processors and retailers faced problems of insuicient quantity and
quality of supplies. At the same time, changes in consumer demand as well as the accom-
panying entry of foreign investors in the retail and processing sectors necessitated signii-
cant and lengthy reforms and adjustments in the structure of food commodity chains to
overcome these problems. Based on an extensive literature overview and a synthesis of
ive case studies conducted upon the assignment of Food and Agriculture Organization
FAO of the United Nations, the current chapter demonstrates how small and medium-
sized food processors manage to install efective procurement systems in weak institu-
tional environments of EECA. The chapter also identiies the factors that drive small
farmer-processor business linkages and their integration into national and international
value chains in order to develop options for support and assistance.

Keywords: Eastern Europe and Central Asia, farm assistance, food chain, processors,
smallholders, vertical coordination

1. Introduction

The whole food chain in Eastern Europe and Central Asia (EECA)—from farm suppliers to
retailers—has sufered a dramatic breakdown of economic relationships at the beginning of
the transition process. Disruptions of supply and inferior-quality food products have become
a commonplace. At the same time, changes in consumer demand as well as the accompanying
entry of foreign investors, primarily retailers and processors, necessitated signiicant reforms
and adjustments in the structure of food commodity chains to overcome these problems.

© 6 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons
© 2018 The
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License Licensee IntechOpen. This chapter is distributed
(http://creativecommons.org/licenses/by/ under the
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use, distribution,
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and Attribution
reproduction in any License
medium, (http://creativecommons.org/licenses/by/3.0),
provided the original work is properly cited. which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited.
182 Agricultural Value Chain

Altogether these factors required considerable efort on the part of policymakers to structure
food commodity chains and food supply of higher quality and safety. Given that such changes
are normally accompanied by a lengthy process of institutional adjustments, an increased
degree of privately driven vertical coordination between transaction partners along the sup-
ply chain became a widespread means to overcome problems of insuicient supply and minor
quality [1]. The newly established procurement systems demand that suppliers are able to
guarantee both disruption-free product lows and delivery of products of a certain quality.
Thus, domestic producers must keep up with quantity and quality expectations.

Many studies show that retailers, processors as well as governments would prefer growth
in farm size due to diferent reasons [2–5]. Nevertheless, retailers and processors are still
compelled to collaborate with small farmers as these farmers are essential for ensuring the
required quantities in some transition countries, particularly in labor intensive sectors. It
is, however, a widespread phenomenon that small farmers are the most vulnerable type
of agricultural producers. In the situation when existing institutional structures are either
incomplete i.e. containing gaps that hinder all producer types equally or captured i.e. asym-
metrically favoring some producer types over others)—and both problems are still present in
EECA today—small farmers face an everyday threat of being excluded from respective value
chains [6–8].

The purpose of this study is to demonstrate how (mainly small and medium-sized) food
processors manage to install efective procurement systems in weak institutional environ-
ments of EECA by establishing linkages with local farmers and integrating them into national
as well as international value chains. The paper also identiies the factors that drive small
farmer-processor business linkages in order to develop policy and support options that can
contribute to strengthening of group-based producer-processor linkages.
Our analysis involves a review of available and accessible sources related to smallholder-
buyer business models for inclusion of small farmers into markets. In addition, the indings
of ive country reports by Food and Agriculture Organization FAO of the United Nations
based on the case studies from Azerbaijan, Kyrgyzstan, Serbia, Turkey and Ukraine on pro-
cessor-driven integration of small farmers into value chains are synthesized.1
The chapter is structured as follows. The subsequent section provides a literature review on
the integration of small farmers into value chains. In this context, foreign investments have
been reported as very important aspects. Therefore, they deserve a separate sub-section.
Another sub-section is dedicated to cooperatives as they are considered a traditional instru-
ment for the integration of farmers into value chains. The further section summarizes posi-
tive experiences of the case studies from ive EECA countries. Conclusions on how to foster
processor-driven integration of small farmers into value chains are provided at the end of the
paper.

1
One of the authors of the current paper participated in the mentioned FAO project and the chapter is based on the
respective FAO Report titled Processor-driven integration of small farmers into value chains in Eastern Europe and
Central Asia EECA [ ].
 Integration of Small Farmers into Value Chains: Evidence from Eastern Europe and Central Asia 183
http://dx.doi.org/10.5772/intechopen.73191

2. Integration of small farmers into food value chains in transition

countries

2.1. Means of integration

The transition process has caused a decline of agricultural output and decapitalization of
the agricultural production system in Central and Eastern Europe [10]. As a result, the food
and agricultural commodity value chains have undergone a tremendous change in the last
decades [11]. The breakdown of the interactions among food chain participants—from farm-
ers to retailers—resulted in supply disruptions of supply and deterioration of the quality of
food products. Concurrently, changing consumer demands and the entry of foreign retailers
and processors have called for groundbreaking reforms of food chains.

Transformation of the retail sector from state-run shops and open bazaars to more modern ,
large format retailers was stipulated by signiicant inlows of foreign investments. Their rapid
development notwithstanding, the new retail formats have been expanding diferently in dif-
ferent transition countries. This gradual expansion is often referred to as the retail waves
concept [12]. In this context, the irst wave countries supermarket sector grew from about
% in the mid- s to % by the mid- s. These shares of modern retail formats are
observable in Hungary, Poland and the Czech Republic. Second wave countries such as
Bulgaria and Croatia are characterized by a 20–30% share of supermarkets and similar retail
formats. Third wave countries, in turn, are those whose supermarket sector did not exceed
% of total retail turnover in the mid- s, for example, Russia and Ukraine. Regardless of
the market shares of modern retailers, existing evidence suggests that foreign companies are
among the leaders in the retail sector of all Central and East-European countries. For example,
the German Metro Group is the second largest retailer in Russia and Ukraine.
Foreign retailers and investors export their business models. In the process of international-
ization they are taking their own business models into the new markets [13–15]. Thus, mod-
ern management concepts and requirements toward business partners are exported. In the
retail sector, this results in the following changes. The centralized, large and modern distribu-
tion centers and external specialized logistic irms substitute for traditional, local, store-by-
store procurement. Furthermore, modern retailers set their own private standards of food
quality and safety that are often much higher than those of national governments [12]. Some
informed commentators suggest that these private standardization initiatives will further
proliferate as the share of modern retailers is growing [16].
Profound structural change is expected in the agri-food sector due to foreign investment.
Within new procurement systems, suppliers have to guarantee both timeliness and quality
of delivered products. This leads to improvement of operations among domestic suppliers as
they face ierce competition on the part of importers [17]. However, in the long run, foreign
retailers aim to source up to % of their supplies from local producers [3, 4].
The observed process of synchronization of successive stages in the marketing channel from
producers to consumers generally refers to vertical coordination. It does not include transactions
184 Agricultural Value Chain

on spot markets, where the commodity exchange is based on a price agreement only. It
includes both vertical integration and productive partnerships contracting [18]. Assumingly,
the higher the priority to secure quality and/or quantity of raw materials, the stronger the shift
from spot market transactions toward advanced vertical coordination mechanisms.

Vertical coordination, introduced by modern procurement systems, favors in theory large

scale farming. There are two reasons for this perspective to prevail. First, the complexity of
the system is reduced and, thus, transaction costs are lower if there are a small number of
large suppliers. Second, larger farms are less costly than smaller farms with regard to assis-
tance provision.

However, small farmers are essential for ensuring the required supply quantities in most
EECA countries. Therefore, retailers and processors are still compelled to include small
farmers in supply chains and provide assistance to them based on the establishment of pro-
ductive partnerships. Particularly in labor intensive sectors, small-scale farming has impor-
tant cost advantages.

As generally regarded, productive partnerships among irms are supposed to be based on

common goals, shared knowledge and pooled resources that altogether lead to beter supply
chain performance. The design of such relationships may vary from loose agreements to long-
term and trust-based contracts [ ].

The key for productive partnerships is contracting. In the context of agri-food supply chains,
the main motivations of farmers to engage into contracting are the following: (1) income sta-
bility (to reduce risk compared to other ways of selling on traditional marketing channels);
improved eiciency management decisions are transferred to the farmers market
security (entering the contract provides a certain security in that the product will be sold if it
meets with the requirements access to capital contractor often provides inputs for farm-
ers, which reduces the usage of credits [20]. Food processors enter into contracts because
they obtain control over input supply. Further, processors use contracts in order to achieve
uniformity and predictability to suit consumers while they also beneit from lower costs in
processing, packing and grading [21–23].

In general, one can distinguish between two types of contracts marketing and production
contracts. Marketing contracts address the issue of supply disruptions by private contractual
initiatives [24, 25] whereas production contracts address quality concerns [26]. Additionally,
these contracts are diferent with regard to the degree of control allocated and risk transferred
across stages. In producer contracts, the contractor engages in the producer s decisions to
a much higher extent than in the marketing contracts. This engagement can even expand
toward ownership of critical production inputs whereas the role of marketing contracts is
essentially in providing a market for the producer s goods [27].

Empirical evidence indicates that both types of contracts persist in EECA countries and their
use is contingent upon the degree of market development. The less a market and its insti-
tutional environment are developed, the less likely it is that a complex system of vertical
coordination will emerge and, this, marketing contracts will dominate. A more developed
market, characterized by greater demand for higher quality products, entails a higher degree
 Integration of Small Farmers into Value Chains: Evidence from Eastern Europe and Central Asia 185
http://dx.doi.org/10.5772/intechopen.73191

of vertical coordination with the wide use of production contracts. However, the use of mar-
keting contracts is more reasonable if the higher quality products become standardized. The
application of production contracts will then mainly pertain to consumer segments character-
ized by diferentiated demands.
In practical terms, contracts that are used in EECA include farm management assistance,
extension services, quality controls, farm input assistance programs, trade credit and even
bank loan guarantees [1]. Thus, evidence suggests that the key actors retailers and proces-
sors ind themselves constrained not by their own capital capacity but by that of other par-
ticipants along the chains on which they depend for critical inputs. For the most part, this
takes place because traditional lending institutions such as commercial banks do not give
credit to enhance the interirm product low. In fact, this has been found to cause frequent
contract breaches in EECA as farmers were not able to access basic production factors to fulill
a contract [25].

In addition, contract enforcement may be an important problem since public enforcement

institutions are weak. Informal enforcement mechanisms such as social pressure, unaccep-
tance of distrust, etc. are also missing due to poor social capital. Therefore, farm assistance
programs must be accompanied by appropriate governance mechanisms.

Thus, the search for quality is a key engine of vertical coordination, but what happens when
the desired quality level is reached? Quality is becoming less of a driver while the need to
enhance eiciency arises as the main motivation for vertical coordination. For example, in
supply chains that bear high costs, retailers and processors work closely with their suppli-
ers to reduce costs. Quality remains a key driver only when a higher than average quality
is explicitly demanded by the customers or when it can be used for diferentiation from
competitors.

2.2. The role of foreign direct investments

Foreign direct investment FDI became an increasingly important element in global eco-
nomic development and integration during the s [28]. Ahrend names two general factors
that make companies open subsidiaries abroad [ ]. On the one hand, companies strive to sell
more goods and services that they produce in their home countries. On the other hand, they
want to launch production in a foreign country that would further enable sales to local and
export markets. In essence, agri-food companies internationalize because of the same general
reasons [30, 31].

Literature on the inluence of FDI on transition economies mentions several positive efects
of FDI. A number of authors agree that FDI facilitate economic growth and reduce poverty
[32–34]. Several studies ofer empirical evidence of the importance of FDI lows for economic
growth in developing countries [35, 36]. Other advantages of FDI include technology transfer
and technical innovation as well as enterprise restructuring [32, 37].
In the EECA countries, FDI induced the following major shifts in procurement systems
procurement systems became largely centralized and based on large and modern distribution
centers instead of local store-by-store procurement; (2) procurement became regionalized across
186 Agricultural Value Chain

borders; (3) traditional brokers were replaced by specialized wholesalers; (4) the logistics mar-
ket became dominated by global irms retailers established preferred supplier systems and
private quality standards were introduced [12]. Altogether these changes marked a growing
role of vertical coordination in agri-food chains of EECA countries [2]. Studies from Bulgaria,
Moldova and Slovakia show that, due to stricter and higher quality norms, more vertical coordi-
nation is taking place [38, 26]. In the Russian food sector, the foreign-owned food processors have
managed to become the major competitors of the domestic ones, in particular in the dairy sector.

2.3. Cooperatives as a means to integrate smallholders

The quest for quality, that requires tight coordination of interdependent activities in value
chains, calls for particular atention toward the role of cooperatives [ , 40]. Bijman and
Muradian mention that international donors and NGOs have re discovered the importance
of cooperatives for rural development in general and for strengthening smallholders access
to markets in particular [ ].
Because small-size producers are the backbone of agriculture in Central and East-European
countries, their resources as well as output toned to be pooled to achieve the demanded quan-
tity of supplies. Horizontal cooperation among smallholders, thus, gains in importance [41].
However, cooperatives face hard times in transition countries. In the Soviet era, farmers have
been forced to join collective farms. Thus, today, collective action still has a bad reputa-
tion as it is associated with loss of private ownership and freedom [42]. Furthermore, during
Soviet times, collective farms and processing enterprises have proven to be very ineicient
and subject to soft budget constraints. An additional problem with cooperatives is that there
is often a lack of trust and social capital among farmers and villagers so that collective action
is hindered already at the initial stage. Thus, Gardner and Lerman conclude that the evidence
for cooperatives in agricultural production is still unfavorable [43].
However, for marketing and supply cooperatives, they observe a more promising situation.
One reason for this is that new forms of cooperatives have been recently established [44]. A
good example is a Hungarian Morakert cooperative where product quality and professional
marketing are the irst priority. Today Morakert s sales to retailers account for about % of
its domestic turnover. Morakert s success is based on four key factors. First, ilter rules are
applied to membership. Second, quality and quantity of products are strictly coordinated.
Third, trust is an inevitable aspect of communication between members and management.
Fourth, private contract enforcement is established [45]. Morakert s procurement system is
centralized, maintained in one place and supported by a common IT system [46]. An own
brand serves as another marketing and coordination mechanism at Morakert. This example
demonstrates how some problems of post-socialist economies can be overcome.

3. Peculiarities of smallholder integration in value chains

The above presented literature review shows that particularly small farms and households
face serious production constraints caused by factor market imperfections in EECA countries.
 Integration of Small Farmers into Value Chains: Evidence from Eastern Europe and Central Asia 187
http://dx.doi.org/10.5772/intechopen.73191

They do not have access to inance, they experience diiculties to buy high standard quality
inputs, and lack technical and managerial capacity. Thus, more and more contract schemes
marketing and/or production contracts and outgrower schemes have been established often
accompanied with the provision of quality inputs, new technologies, credit and extension
services to the farmers [10]. The current section provides further evidence of privately driven
vertical coordination derived from the FAO reports on case studies from ive EECA coun-
tries—Azerbaijan, Kyrgyzstan, Serbia, Ukraine and Turkey.

3.1. Marketing channels of small farmers and households

These general indings have been observed in the reports of all ive countries. Disruptions of
the agri-food value chains resulted in a dualistic structure of agricultural production. One the
one hand, there are large corporate farm businesses such as agroholdings or state enterprises
while, on the other hand, there are smallholders that account for considerable share of agri-
cultural production in a number of sub-sectors. For example, in Ukraine, fully vertically inte-
grated enterprises that are often referred to as agroholdings have rapidly developed whereas
the labor intensive sub-sectors such as horticulture are marked by domination of small farms
and rural households in production [47].
According to all country reports, the role of agricultural sector in overall gross domestic prod-
uct GDP is diminishing. This fact notwithstanding, agriculture is still among major employers
and, thus, is closely intertwined with rural development. In particular, all reports emphasize
the importance of small-scale farms and households not only for own consumption but also
for market supplies and employment of family members. At the same time, income disparity
between urban and rural areas becomes larger in favor of the former. Particularly for young
people, urban areas are more promising with regard to their future careers. Consequently,
outmigration from rural areas is a common phenomenon in all countries.

This outmigration afects negatively the market size for direct sales as the main marketing
channel of smallholders. Moreover, as exempliied by the Serbian case, modern retailers take
over the shares of smallholders by ofering more fresh products, in particular fruit and veg-
etables. Retailers are also able to ofer these products for a reasonable price and standardized
quality, thus engaging into stif competition against directly marketing farmers and house-
holds. As a result, the atractiveness of direct marketing is shrinking.

Opposite to the negative efect of migration on the direct marketing of farm products, indirect
marketing channels rather proit from this development. Moving to urban areas people have
to buy processed food and have to buy in retail outlets. Therefore, the importance of indirect
marketing channels is already high and will grow in the future despite growing competition
from large retailers.

3.2. Obstacles to integration into value chains

Smallholders in EECA face two main obstacles to integration into value chains. On the one
hand, they do not have suicient volumes of production. On the other, they often lack the
required quality. In order to combat the irst obstacle, the solution would be to pool quantities.
188 Agricultural Value Chain

A classical way would be the establishment of cooperatives. However, the reports have been
very clear mentioning that cooperatives are not successfully operating. The reasons include
negative reputation due to the historical background of cooperatives, operational ineicien-
cies and top-down implementation of the cooperative ideas, as well as taxation and admin-
istrative disadvantages. Another way would be the horizontal informal collaboration among
smallholders. However, all studies report of a low level of trust and social capital among rural
population. For example, the Ukrainian case study on Navigator-Agro demonstrated that
there was a complete absence of trust from small and medium farmers in the idea of collabo-
ration. Moreover, the level of trust between each other was very limited among rural inhabit-
ants. A third way, as exempliied by the Turkish case, would be to sell the products through
middlemen but low prices make sales at the spot market more proitable.

Regarding the second obstacle—the quality issue—literature provides reach evidence that
quality can be improved based on vertical coordination. However, the literature most often
refers to the examples of foreign investors who have leapfrogged quality by collaborating
with large corporate farms. Modern and particularly foreign-owned retail chains prefer buy-
ing the needed larger volumes from a limited number of suppliers, thus favoring mainly
corporate farm businesses. The reports demonstrate that larger processors also favor larger
suppliers.

The concentration ratio and market power of modern retail chains and processors are increas-
ing in EECA. Overall, this development favors large suppliers, especially branded manufac-
turers that invest in the achievement of appropriate quality levels for their branded products.
The reports also reveal that imports are playing an important role in satisfying the demand
for higher quality products. However, interestingly, imports are also a major driving force
of the competition in the low price segment. For example, Chinese tomato paste imports are
replacing local Kyrgyz products. The Ukrainian report shows that domestic processors have
lost % of domestic market owing to stif competition with foreign companies. Another
threat for Ukrainian producers resides in poor quality of local products.

Another issue in is high competition from imports due to membership of all scrutinized coun-
tries to the World Trade Organization WTO . For example, Turkish pasta producers often
substitute cheaper imported wheat for locally produced one. To this end, it is often easier to
source from one large supplier from abroad than from a multiplicity of small local producers.
In Ukraine, concentration is taking place not only on the retail and processor levels but also
on the farm level. Furthermore, due to large volumes of imported raw and processed prod-
ucts e.g. dairy products, fruits and pork meat , there is a high competition. The willingness
to invest into the development of cooperation with small producers is rather low for pri-
vate companies. Smallholders have a limited access to state support, investments and credit
resources. The result is that they experience a lack of qualitative seeds, fertilizer and mechani-
cal appliances. Additionally, they have a lack of reliable information about markets.
Noteworthy, agricultural policies also contribute to dualistic production structures as well
as to the development of large scale farming businesses. Driven by considerations of food
security and food safety, most of the programs promote large scale farming and processing.
 Integration of Small Farmers into Value Chains: Evidence from Eastern Europe and Central Asia 189
http://dx.doi.org/10.5772/intechopen.73191

For example, food security is among major priorities of the government in Azerbaijan where
the related reforms have been conducive to the development of vertically integrated holdings.
The Serbian and Turkish cases are marked by limited and lagged access of small farmers and
processors to the information on relevant policy programs. In addition, the application for
state support programs is often too complicated, thus constraining small producers or even
precluding them from necessary support due to limited human and time resources. In all ive
countries, positive exceptions are the policies regarding storage facilities. Since small farm-
ers and households face diiculties to store their harvest—particularly in the case of perish-
able products—policies are seting incentives to enlarge storage capacities. For example, in
Azerbaijan, cold storage facilities and cereal storage facilities have been constructed
with the help of the government in diferent regions of the country. A similar example can
be found in the wine sector of Azerbaijan a GIZ Deutsche Gesellschaft für Internationale
Zusammenarbeit study has shown that particularly the rural infrastructure has to be devel-
oped in order to enhance the competitiveness of the sector and the inclusion of small wine
growers [48].
The report on Kyrgyzstan demonstrated explicitly that even if successful cooperation is
established, the optimal mode of transactions is also contingent upon the institutional set-
ting. About % of farmland in Kyrgyzstan is under operations of small producers who face
both production and marketing problems. The main issue is the lack of a stable buyer of the
products. International technical assistance projects were temporarily helpful in achieving
tighter cooperation between farmers and processors but the later have reported that dis-
honest behavior of small farmers made such cooperation unsustainable. Despite advanced
payments, fertilizer and seeds received from processors, farmers did not fulill their commit-
ments after harvesting. Instead, they sold their products at the fresh markets where prices
were higher. Therefore, almost all processors prefer to operate through intermediaries or pro-
curers that collect produce from the small-scale farmers and sell in bulk to the enterprises.
Intermediaries and farmers predominantly collaborate based on short-term oral arrange-
ments without signing any contracts. Given such circumstances, it is also no wonder that the
relations between processors and farmers have worsened over time and spot market transac-
tions have become the best choice. To this efect, a shift of export policy from unprocessed to
processed foods made spot market transactions more favorable, thus decreasing the extent
of vertical coordination in the sector. However, in the long run, most processors would like
to work with cooperatives and larger suppliers rather than dealing with small-scale farmers.
In addition to institutional setings and opportunistic behavior, other obstacles have to be
overcome to establish tight vertical linkages in supply chains. Low social capital and lack of
trust are particularly constraining. As the case study on the Ukrainian Shyroke marketing
group exempliied, processors had to provide some kind of collateral to suppliers prior to the
start of cooperation in order to convince the smallholders of the reliability of intentions. A
well-known game-theoretic procedure named hostage exchange is the case in point here [ ].

Overall, it is evident that SME processors in all analyzed countries have to cope with very
intense competition and a number of other problems, thus facing the need for clear corporate
and marketing strategies. At the same time, as the report on Kyrgyzstan exempliies, many
190 Agricultural Value Chain

SMEs still do not dispose of such strategies. A survey revealed that only a minor share of
enterprises has strategic development plans. The managers of most companies neither par-
ticipate in management trainings nor invest in capacity building of their staf. Even more
threatening is the absence of customer orientation among SME processors in almost all ana-
lyzed countries.

3.3. Processors as drivers of integration

As shown above, smallholder agricultural producers are ofered to cooperate in EECA coun-
tries at a much smaller scale than in the developed countries. However, the situation can be
changed if one considers the possible role of small and medium-sized processors. They are
themselves not very atractive business partners for large corporate farms and, thus, they
are more open to work together with small farms and households. The positive examples
presented in the country reports highlighted that SME processors even stimulate horizontal
collaboration among the farmers within informal groups. Thus, cooperation with small and
medium-sized processors is a promising way to integrate smallholders into value chains.
Close relationships between processors and smallholders are of advantage for both sides.
Processors receive security regarding the quality and the volume of their raw input sup-
ply. Small farmers and households see the main advantage in having a reliable and secure
opportunity to sell their products. In this context, all reports suggest that smallholders value
unanimously fair price as an important aspect of cooperation but not as important as a secure
market access. Hence, vertical coordination can be regarded as a success factor for the devel-
opment of sustainable value chains.
The case studies mention a number of successful examples of value chains that practice cus-
tomer orientation, have a clear strategy, and perform well. It is clear that successful SME
processors do not try to compete with national or global cost leaders as they cannot reach
the needed economies of scale and scope, thus rendering a cost leadership strategy impos-
sible. The successful examples are working with a mix of niche and diferentiation strategies,
ofering superior quality in well-known traditional products. As in the case of the Serbian
Zdravo Organic, production-related aspects are used for diferentiation. First atempts to cre-
ate real brands are also made, targeting local, national and export markets. Importantly,
customer orientation is often not limited to end consumer orientation; it may include whole-
salers, retailers or exporters and is often driven by relations with importers e.g. Schwabe
company , investors from other sectors e.g. Zdravo Organic , foreign investors and donors.

As the retail market is increasingly competitive, SME processors are slowly excluded from
this channel. One way of responding to this development is demonstrated by Sirela, a Serbian
dairy company that started to vertically integrate by building an own retail network. Today,
Sirela is selling its entire production through some 40 own shops whereas other food proces-
sors have imitated this strategy and are investing in own retail outlets.

Regardless of their strategic orientations, the SME processors have to keep up with the mar-
ket requirements toward steady volumes and high quality of products. In this context, well-
functioning linkages between the SME processors and their suppliers, that is, small farms
 Integration of Small Farmers into Value Chains: Evidence from Eastern Europe and Central Asia 191
http://dx.doi.org/10.5772/intechopen.73191

and households, are the key to success. Moreover, processors should be the initiators of such
cooperation. The reviewed case studies demonstrate that long-term and trustful vertical rela-
tionships indeed exist but the smallholders are often regarded as diicult partners that tend
to behave very opportunistically as they always have the choice to consume their products
within a household instead of selling to the market.
Processors use outgrower schemes particularly for upgrading of the delivered quality.
They provide needed inputs e.g. high quality seeds, irrigation equipment or pigs of a spe-
cial breed and provide training opportunities e.g. seting up a demonstration farm and
extension services. In addition, as mentioned in several reports, processors may even ofer
advanced inancing of farm inputs. Yet, where possible, misbehavior of farmers has to be
precluded through contracting and sanctions, as successfully demonstrated by the Agroplast
cooperative that produces tomato paste in Kyrgyzstan.

3.4. Positive experiences of tight vertical linkages

Two general strategies are observed with regard to the establishment of well-functioning ver-
tical linkages. The irst one is to be fully oriented to small and medium-sized family farms
and invest time and money in this type of cooperation. The second approach is to be partially
vertically integrated—buying or building own farms and cooperating with small farms at the
same time.

Good examples of these two strategies are found in the dairy sector of Serbia. One is the dairy
company Sirela while the other is the dairy company Lazar. The Serbian dairy market is sub-
ject to the increasing market power of retail chains. In response to this development, Sirela and
Lazar have decided to run their own retail networks. Yet, this is the only similarity between
two companies as their sourcing strategies are totally diferent. Lazar has successfully verti-
cally integrated a dairy farm of milk cows. At the same time, Sirela has established coop-
eration with a number of small farms, not least because of unfortunate own experience of full
vertical integration with primary production in the past. Sirela ofers secured sales market,
stable payments, improved access to subsidies, extension services, free usage of milk coolers
and ad hoc support to farmers.

Further examples of successful cooperation between SME processors and small family farms
are found in fruits and vegetable as well as in grain sectors. SMEs are often oriented toward
the domestic market but some are strongly involved in exports, as it is the case with Zdravo
Organic and Vitamin in Serbia. The main beneit for SME food processors from cooperation
with small farmers lies in secured input markets. In turn, processors provide farms with
inputs such as seeds, fertilizer, chemicals, irrigation equipment and advance payments.
Additionally, extension service is provided.

The Ukrainian case studies have also exempliied how mutually beneicial cooperation
between processors and small farms can be established. Rural population in Ukraine is char-
acterized by low levels of social capital and general cooperativeness—a factor that substan-
tially hampers any collaborative efort on the part of processors or wholesalers. However,
this obstacle can be overcome through the use of leadership mechanisms. Processors have
192 Agricultural Value Chain

initiated the establishment of groups of farmers led by formal and informal rural commu-
nity leaders, thus raising the overall level of trust in these groups. Furthermore, processors
provide inancial support to such groups at the beginning of cooperation. This also increases
the level of farmers trust toward a processor. For example, the Navigator-Agro company
invested in construction of a small logistic center in one of the villages.

The Ukrainian example of the Kolos company demonstrated that cooperation between
smallholders and an agroholding is also possible. Kolos, a meat-processing company from
Chernivtsi, together with the Kamyanets-Podilsky University developed a breeding and
reproduction system for a Dutch breed of pigs and then distributed it among smallholders.
The main aim of this activity was to enlarge the supply base and thus make full use of own
production facilities by Kolos. This farm assistance program included on-site demonstrations
and teaching of suppliers at an experimental farm as well as introduction of a quality moni-
toring system at the rural household level. The package of additional services delivered to
farmers included provision of piglets, fodder, veterinary service and inance.. As the proces-
sor s initial investment in trustful cooperation, farmers have also been allowed to keep one or
two pigs for own consumption. Nevertheless, there were a few cases when farmers tried to
cheat by increasing the weight of supplied pigs using methods that were not speciied before.
These incidents showed that contracts have to include penalties in order to prevent opportu-
nistic behavior and discontent of the honest supplier.

The Kyrgyz report presents two successful cases of processor-driven integration of smallhold-
ers. The Agroplast cooperative provides farmers with seeds and fertilizer helping to increase
the quality and yield of the products. Additionally, once in a year, training to farmers is pro-
vided. At the beginning of a year, the cooperative invites all farmers to plan production vol-
umes and to determine the needs of farmers in agricultural inputs seeds, fertilizers, etc. .
Furthermore, Agroplast provides prepayment schemes. Both sides farmers and Agroplast
understand their relationship as trustful but both sides also acknowledge that only one mis-
take fraud, dishonesty, etc. can turn the established trust into the opposite.

Apart from giving promises and fulilling them, another driver of successful cooperation
has been the creation of informal supplier groups. Agroplast has initiated several groups of
farmers, each of which is led by a respectful person. This person also plays the role of a com-
municator between Agroplast and the farmers. These group leaders maintain information
exchange, coordinate logistics and delivery schedules. Group leaders also act as warrantors if
a group member needs some inancial assistance from Agroplast.
The second case study was conducted in Galanfarm, a irm that exports valerian to a German
pharmaceutical company. In order to produce high quality valerian, Galanfarm invited small
farmers to atend a Farmer Field School established and supported by a German donor in
cooperation with a local consulting agency. Besides an intensive training on all important
production steps, farmers got an opportunity to organize themselves into informal groups
and select group leaders. Similar to the Agroplast case, today these group leaders serve as
information brokers between Galanfarm and the farmers, schedule the delivery volumes and
timing as well as coordinate the quality of supplied raw materials. Overall, this case features
the important role international donors can play in the development of procurement systems
and integrating smallholders into them.
 Integration of Small Farmers into Value Chains: Evidence from Eastern Europe and Central Asia 193
http://dx.doi.org/10.5772/intechopen.73191

4. Conclusions

Our literature review and synthesis of ive country reports generally demonstrate that small-
scale producers are still an inevitable part of agricultural value chains in transition econo-
mies, in particular with regard to production of perishable and labor intensive products.
The marketing channels for products of small-scale producers are diverse and include direct
sales to the rural population, processing industry, wholesale, food retail and even exports. At
the same time, own consumption is also quite important, especially when market prices are
low. Nevertheless, the future of small farmers depends on the development of the processing
industry in general and SME processors in particular. Hence, policy should aim to create an
enabling environment for SMEs.

Another important goal of the smallholder inclusion in value chains should be the achievement
of customer orientation by them. On the one hand, all country reports show that competition
is growing because domestic markets face inlows of imported products. On the other hand,
the reviewed country studies demonstrate that concentration processes are taking place at the
downstream stages of the value chain. To deal with these two trends successfully, small produc-
ers have to conform to the requirements of their commercial customers as well as end consumers.

The ive reports clearly indicate that a cost leadership strategy cannot be the appropriate
strategy for SMEs. First, cost leadership requires large quantities to produce on eicient scale
level. Hence, on the national level, large domestic processors are beter suited to implement
this strategy. Second, in the context of WTO, cheaper imports enhance competition. The same
is true for exports. Thus, small producers have to use a diferentiation strategy to be success-
ful in the long run. Potential diferentiation instruments include higher quality, quality certi-
ication, branding, production of traditional or local specialties, etc.

In the context of vertical coordination, the reported case studies have pointed out a number of
success factors. First, farm assistance in the form of input provision from processors to farm-
ers is crucial. For instance, processing company Vitamin has introduced a contract farming
scheme for the production of pepper seeds. This scheme is scaled-up through subsequent
distribution of seeds to a larger group of farmers which grow the peppers. Seed distribution
is followed by provision of other inputs and assets such as fertilizer and irrigation equip-
ment. Processors provide their suppliers with animal breeds Ukraine and milk cooling tanks
Serbia . In addition to input provision, clear production instructions are shared with the sup-
pliers while the production process is strictly monitored by the processors. If farmers do not
comply with these instructions, they are penalized.

Second, apart from input supplies, downstream partners provide inancial assistance to farm-
ers. This assistance includes inancing of diferent types such as loans, advanced payments,
promissory notes, etc. In one case, investments in a small logistic center were made before the
actual collaboration started. In some countries, subsidies are paid to smallholders only if a
processor applies for them in favor of the smallholders.
Third, extension services are provided. Processors authorize own employees and assign exter-
nal experts, build demo farms and cooperate with local universities as well as international
donor and technical assistance organizations to train the farmers.
194 Agricultural Value Chain

Fourth, collective action and trust are promoted through creation of formal and informal
groups of farmers. Being trained within such groups, farmers additionally become conident
in value chain partners, perform social control over each other, produce the required quantity
and diversify production risk. For such groups of farmers, it is very important to elect group
leaders from respectful persons. These group leaders serve as a glue that holds all group
members together and, thus, add voluntary, botom-up features to this type of cooperation
that was initially enhanced by outside processors. Hence, the aim and perceived beneits
are shared by all group members. All reports show that processors are supporting the idea of
replacing middlemen by a collective action, for example, the formation of formal groups of
farmers. In contrast, cooperatives in their traditional sense are not spread in EECA countries
because they are associated with collectivization and the socialist top-down approaches that
have proven to be ineicient and corrupt. An alternative could be the establishment of coop-
erative structures based on the ideas of new generation cooperatives. Particularly, the usage
of the word cooperative should be avoided.

All in all, the most important aspect for the integration of smallholders into value chains is
the generation of sustainable beneits for the smallholders. In this context, it is crucial to dem-
onstrate the value of stable and secure marketing channels characterized by fair payments.

Author details

Jon H. Hanf1* and Taras Gagalyuk2

*Address all correspondence to: jon.hanf@hs-gm.de

Geisenheim University, Geisenheim, Germany
Leibniz Institute of Agricultural Development in Transition Economies, Halle, Germany

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 Chapter 11

Economic Synergies from Tighter Agri-Business and

Coal Seam Gas Integration
Syeda U. Mehreen and Jim R. Underschultz
Syeda U. Mehreen and Jim R. Underschultz
Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.73195

Abstract

In addition to government royalties, Australia’s coal seam gas (CSG) development has
been beneicial in terms of facilitating regional economic development and growth,
expansion of remote populations and facilities, increased employment opportunities and
improved regional infrastructure, mainly in regional Queensland. There is substantial
revenue potential for the Australian economy from the export of the resource to interna-
tional energy markets. Many current CSG operations in Australia are located in prime
agricultural-catle grazing regions. Failure to identify potential coexistence opportunities
between agribusiness promoting industries API s and the CSG industry could limit the
agriculture value chain and consequently restrict Australia s food security and agricul-
tural export potential. The economic beneits of the CSG industry combined with the
importance of a sustained agricultural industry lay the foundation for investigating coex-
istence opportunities between these industries. Emphasis has been placed on potential
synergies exhibited by the CSG industry namely from CSG by-products and the local
agricultural industry which is typically dominated by API s.

Keywords: coal bed methane, coal seam gas, catle value chain, agricultural value chain,
energy-food nexus, gas & agricultural coexistence, agribusiness

1. Introduction

Growing concern of climate change has increased environmental awareness and driven a
global initiative for nations to lower their carbon footprint by implementing strategies to
reduce greenhouse gas emissions [1–3] as highlighted by the Paris Climate Change Conference
and the resulting COP agreement. As Australia aims to contribute towards global energy
policy measures of transitioning to a lower carbon economy, growing interest has emerged in
the development of CSG and other unconventional sources of natural gas [4]. Australia has an

© 6 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons
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use, distribution,
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and Attribution
reproduction in any License
medium, (http://creativecommons.org/licenses/by/3.0),
provided the original work is properly cited. which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited.
200 Agricultural Value Chain

abundant supply of CSG resources estimated to be around , Petajoules PJ in [5],

with potentially rich CSG areas, yet to be explored [ ]. With growing demand for low-cost gas
production, Queensland is playing a key role in Australia s CSG exports with the construc-
tion of three CSG to liqueied natural gas LNG facilities each with two LNG trains , worth
approximately ~ $USD billion [7–9] of infrastructure investment.
Despite the direct economic potential of providing CSG-sourced energy to domestic and
international markets and the relatively lower emissions of gas ired power over coal there
has been some public concern associated with the expansion and development of Australia s
CSG industry. These concerns are typically related to environmental issues sustainable man-
agement of the typically large volumes of saline-rich CSG associated water CSGAW that is
produced as a by-product of CSG extraction and land-use conlicts amidst already existent
agricultural operations [4]. Due to the total dissolved solids TDS content of the CSGAW, it
requires desalination and amendment to some degree before use in most surface applications.
Recognising various industries or entities that can beneicially use CSG by-products will help
alleviate the concern associated with the large brackish-water lows [4]. It is crucial to have
carefully planned water management policies to strategically manage the volumes of water
generated from the CSG industry and thereby maintain a sustainable balance [ , 11]. Careful
evaluation of the beneicial use of the CSG-associated by-products can promote co-existence
of other complementary industries that could provide sources of additional revenue for the
CSG industry [5, ] and expanded or new agribusiness opportunities. Potential end uses of the
CSGAW that have been studied in this article include, irrigation, watering of livestock, abat-
toir/meat processing industry, leather industry/tanneries, discharge to surface waters, aquifer
recharge, artiicial lake or constructed wetlands for recreation and ecosystem diversity, coal
mine water, cooling tower water, saline inland aquaculture, water storage to combat rural
ires, and growth medium for cultivating microalgae for the biofuel industry [ , 13].
Characteristically, the location of Australia s CSG industry is within regions of high resource
CSG potential but minimal urbanised development. These areas are often dominated by
intensive farming and agricultural-rich lands livestock and irrigation properties . Therefore,
it would be mutually beneicial to maximise coexistence opportunities between the CSG
industry and agribusiness, by promoting complementary industries which already dominate
the agriculture-based rural economies. The notion of coexistence in this article can be deined
as the synchronistic functioning of the CSG industry with the local API typically in close prox-
imity to CSG operations. API s have been deined as industries or local business that promote
or assist in the sustainability or development of the native agriculture based supply chain.
Due to the rural nature of many of the CSG developments and their proximity to agricultural
lands, identifying regional synergies is beneicial in terms of facilitating economic develop-
ment and growth that leverages the local workforce capabilities and expertise. Furthermore, it
is critical to coordinate and network with the local landowners and agricultural community to
facilitate the efective establishment and eicient integration of the CSG industry with exist-
ing agribusinesses. This chapter investigates the coexistence potential between the already
present agricultural industry, CSG industry and API s, by exploring the possibility for the
beneicial use of by-product CSGAW and services by a variety of industries. A coexistence
model is presented, which may be applied for agribusiness in already existent CSG-rich
regions or new CSG extraction and processing sites being planned in agriculture-based areas
all this, so the nexus between food and energy can still occur.
 Economic Synergies from Tighter Agri-Business and Coal Seam Gas Integration 201
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2. CSG background

2.1. Natural gas from unconventional reservoirs

The composition of the extracted gas from both conventional and unconventional reservoirs is
mostly methane [4, 14] however, the source rock strata and the extraction techniques dictate
the classiication of the natural gas [ , 15]. Table 1 provides a summary of the main diferences
between natural gas sources. In the case of conventional gas, the natural gas migrates through
buoyancy and natural pressure gradients within permeable strata porous sandstone, silt-
stone or carbonate geological formations to a point where it becomes trapped and therefore
may not even require pumping to collect at the surface [15]. However, for unconventional
natural gas such as CSG , low permeability strata hold gas in place via capillarity or adsorp-
tion rather than buoyancy efects [14]. In Australia, the CSG industry is the most developed
out of the remaining gas types sourced from unconventional reservoirs [5].

2.2. CSG extraction

Coal seam gas CSG is an unconventionally sourced natural gas which usually contains
approximately + % methane, and is found adsorbed within the underground coal seams
[4, 5, ]. Coal is a carbonaceous or carbon-based sedimentary rock that formed from terrestrial
organic mater such as trees, which decayed and compressed over many millions of years [ ,
17]. Due to ongoing high pressure and temperature-associated compaction processes from the
deposition of overlaying strata, the coal was naturally buried to varying depths depending
on the extent of forces experienced by the associated geology [ , , ]. This coal formation
process is known as coaliication [4, 19]. Depending on the geological history, the coal is clas-
siied into diferent ranks which are deined as the extent or level of coal maturation [ , ,
]. Low coal ranks are typically located close to the surface and are relatively younger com-
pared to higher coal ranks which have been buried deeper over longer time periods [ , ].
With coaliication associated processes, there could be thermogenic methane produced as a
result of chemical reactions within the decaying organic mater and once generated, it becomes
adsorbed into the matrix of the coal [ , ]. Additionally, biogenic methane can also be pro-
duced from microbial activity, typically at temperatures less than ° Celsius and at shallow
depths. Biogenic methane can also be adsorbed into the coal matrix [ , ]. Apart from meth-
ane, additional gases such as nitrogen and carbon dioxide also have the potential to migrate
through the coal strata and consequently get adsorbed into the coal matrix in varying amounts
[ , ]. Geological investigation techniques and organic geochemistry analysis can reveal the
most likely source and process from which the gas originated [ , ].

The geological structure of coal is characterised as a coal matrix containing micropores ,

which is surrounded by a network of water-illed cleats or fractures [ ]. Over time as the
CSG resource is formed, it is adsorbed within the coal matrix and is typically found adjacent
to the water-illed cleat structure [ , ]. If the pressure in this coal-cleat system is decreased
by drilling wells and producing water from the cleats, then the methane gas loses its adsorp-
tive ainity with the coal structure and consequently de-sorbs and migrates with the water
through the coal structure and is collected at the surface through production wells, as a gas-
water mixture [ , , ]. The CSG resource is then piped to a processing facility where it
 202
Agricultural Value Chain
Atributes Natural gas from Natural gas from unconventional reservoirs
conventional reservoirs
CSG Shale gas Tight gas
Hydrocarbon • Mainly methane impuri- • Mainly methane usually +% • Mainly methane but can • Mainly methane
composition ties ethane, propane, purity) have condensate
butane, condensate)
• May also be co-located
with oil

Typical host rock • Underground reservoir • Coal seams the coal matrix • Shale rock (more imper- • Varied rock locations (gas migrates
permeability TP in sandstone, siltstone, or meable than coal) into low permeability limestone &
TP mD
carbonate rock sandstone or siltstone reservoirs
TP − −
mD
TP ≥ mD TP −
–1 mD

Typical depth • m • m • m • > m

Extraction • Vertical/directionally • Desorbed by depressurization of • Shale is highly imper- • Vertical, horizontal or directionally
drilled wells coal seam by water removal meable and requires drilled wells
hydraulic fracturing
• Gas transport due to • Vertical, horizontal or directionally • Large scale hydraulic fracturing
natural pressure and drilled wells • Horizontally drilled required
buoyancy wells
• In Australia around % of wells • May need well acidizing to stimulate
will require stimulation in the form gas production from low permeability
of hydraulic fracturing wells

Signiicant resource • WA, SA, QLD & ofshore • QLD, NSW • SA, NT, QLD & WA • WA, SA, VIC
location federal

Signiicant • WA, SA & ofshore • QLD, NSW • SA —

production location federal

Table 1. Some key diferences between natural gas sources adapted from [ ] .
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undergoes dehydration and compression. The gas is then transported via pipeline network to
power stations for electricity generation [ ]. Since the completion of the ofshore LNG facili-
ties, Queensland has been exporting liqueied CSG to international gas markets [31].

2.3. CSG water production

Generated in large volumes during the CSG extraction process, the CSGAW is regarded as
one of the major by-products of the CSG production process, the other being salt which is
dissolved in the associated water [ ]. Figure 1 is a schematic representation of a generic CSG
production curve for gas and CSGAW. Actual production curves are highly variable across a
particular asset or between sedimentary basins. For example, the average CSG well in the Surat
Basin in Queensland produces between and million standard cubic feet per day MMscf/d
of gas but the best wells exceed MMscf/d [9]. The historical ratio of water production to gas
production across all of Queensland s CSG wells over time is ploted in Figure 2 and ranges
between about and ML/PJ. Initially, when the CSG production wells are depressurized,
large volumes of CSGAW are produced [4, 5]. As time progress, these signiicant water volumes
decline, with increasing CSG lows [ , , 33]. Typically, the low of CSG then gradually falls
towards the end of the life of the CSG production well, when it can be decommissioned [34].

2.3.1. Water quality

CSG water chemistry is inluenced by the geochemistry of the originating coal seams from
which the water was removed from, as well as extent of interactions with other subsur-
face groundwater lows [ , 34]. CSGAW has been typically characterised with high levels

Figure 1. Typical CSG well production stages modiied from [14] .

204 Agricultural Value Chain

Figure 2. Queensland CSG production presented as Megalitre ML of produced water per Petajoule PJ of gas.

of dissolved solids & salts, oil based compounds if thermogenic and metals [3, , 35].
Chemicals used on the CSG operator s sites during well construction, drilling, stimulation
and maintenance activities [ ] may also be present in the chemical proile of the CSGAW. The
characteristic quality of CSGAW is outlined in Table 2. CSGAW extracted from the Surat
Basin has been typically characterised as being alkaline in nature, with high levels of sodium,
bicarbonate and chloride content [ ]. Water is classiied as brackish water when the TDS

Water quality parameter Unit Range Acceptable livestock watering limits

pH — None prescribed

Total dissolved solids TDS mg/L Table 6 Table 7

Sodium adsorption ratio (SAR) — None prescribed

Fluoride mg/L . .

Sodium mg/L None prescribed

Magnesium mg/L 4–13 None prescribed

Silica mg/L 19–51 None prescribed

Sulphate mg/L None prescribed

Chloride mg/L None prescribed

Potassium mg/L None prescribed

Calcium mg/L . None prescribed

Manganese mg/L . . None prescribed

Iron mg/L . . None prescribed

Bicarbonate as CaCO3) mg/L None prescribed

Table 2. Surat Basin CSGAW quality & acceptable livestock watering limits [13, , 39] .
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levels fall characteristically between and , milligrams per litre mg/L CSGAW is
typically classiied as brackish water as it has total dissolved solids TDS ranging between
and mg/L [ , 37]. Adequate water treatment and careful management practices are
critical to prevent harmful efects on the environment and end user [ ].

2.3.2. CSG water treatment methods and brine management options

The direct application of untreated CSGAWA is limited as its quality is often less than the
required water quality of many end users [4, ]. As previously mentioned, CSGAW contains
levels of salt and other trace elements that may need to be removed before it is suitable for use.
Therefore, most water treatment technologies rely on desalination methods such as reverse
osmosis RO that then generate a highly concentrated saline eluent waste stream brine
and a treated CSG water permeate stream [5, , 41, ]. Many of the CSGAW treatment tech-
nologies are based on the idea of increasing the water recovery rate and consequently mini-
mising the volume of brine [ , ]. Furthermore, the viability of treatment processes is also
largely determined by the cost factor associated with capital and operating expenditure [5].

For the RO plant to run eiciently there may be pre- and post- treatment required of the
CSGAW. The major stages of CSGAW treatment include feed collection ponds water col-
lected to homogenise feedstock , ultra-iltration removal of particulate mater , ion exchange
IX reduction of water hardness ions, Ca + and Mg + and RO desalination units [ ].
Chemical amendments and conditioning with dosing additives is further applied to ensure
the treated CSGAW is suitable for the end user [5]. As an example, Figure 3 represents the
overall CSGAW treatment process that is employed at the Kenya Water Treatment Plant oper-
ated by QGC Pty. Ltd. and managed by SunWater [43].

Figure 3. CSGAW processing scheme at Kenya Water Treatment Plant modiied from [39] .
206 Agricultural Value Chain

The saline waste eluent stream produced by the RO processing unit is typically further con-
centrated through the mechanical and thermal brine concentration units [ ]. The brine concen-
tration system is an integration of dehydration technology which includes, heat exchangers,
falling ilm evaporation vessels, gas powered compressors, gas ired auxiliary heat chambers
and de-aerators [44].

2.3.2.1. Brine management options

Brine is regarded as the concentrated saline eluent that is generated as the waste output
stream from RO water treatment or brine concentrators [5]. Managing brine in an eicient
and environmentally acceptable manner is of utmost importance to the CSG industry. One
possible brine management option is to inject the brine generated from CSGAW treatment
into a geologically isolated containment that is at an adequate distance from any ground-
water source. An alternative option is to evaporate the saline eluent brine to a more
concentrated smaller volume or to further evaporate the brine to generate a dry solidiied
salt, which can then be transported to a waste disposal facility operated by CSG company
or of-site .
Therefore, an underlying aspect of brine management is brine volume reduction, to ease
downstream processing of the large volumes of brine that will be generated over the life of
CSG development. Growing interest is arising in minimising brine volumes by concentrating
the saline eluent generated from RO water treatment, to ultimately produce commodity crys-
tallised salts of potential commercial value. Recoverable Salts include sodium bicarbonate,
sodium carbonate and sodium chloride [4].

3. CSG services and potential agribusiness promoting industries

CSG developments primarily in Queensland s Surat and Bowen basins have introduced
enhanced regional infrastructure to the remote landscape [45]. The presence of the CSG indus-
try within a regional seting has introduced many new businesses that were not previously
existent in the area. This has allowed for increased business activity and economic growth of
the regional centres near the CSG industry [ ]. Some of these enhanced community services
facilitated by CSG developments are summarised in Figure 4.

Aside from community services, the establishment of the CSG industry in Australia has intro-
duced an array of CSG ield supporting infrastructure including underground gas and water
gathering networks, gas processing facilities, water treatment plants, transportation networks
& telecommunication systems to the CSG producing regional centres of Australia [4], many of
which are on agricultural-rich lands [33]. The agriculture industry is by far the most established
industry across a large part of Australia s regional area where many of the CSG developments
are also located. Such an area is the agriculture-rich heartland of the Surat Basin in southern
Queensland which is dominated by irrigation and catle grazing lands [33]. An example of a
regional seting that has experienced resource expansion such as this, is the Western Downs
region in Queensland, due to its location within the CSG producing Surat Basin.
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Figure 4. Efect of CSG industry driven facilities on regional infrastructure.

Mehreen & Underschulz [39], have investigated and analysed several industries that could
potentially use the CSG by-products using screening matrices. Those industries with a link
or contribution to the agricultural value chain, are natural candidates for implementation
in the present agriculturally-rich CSG development areas. The screening matrix criteria
are presented in Table 3. A comprehensive literature review was conducted by Mehreen &
Underschulz [39] to assist the screening matrix analysis, whereby each criterion was rated
= low, = medium, = high . The scores were then totalled for each industry. Upon care-
ful consideration and assessment of the applicability of each industry as a beneicial user of
the CSG by-products, the screening matrix analysis revealed that industries that were closely
associated with or contributing to the agricultural value chain typically API s scored highly.
These API s with high coexistence potential with the CSG industry are meat processing, irri-
gation, tanneries and livestock watering. An excerpt of the literature review with speciic
reference to these high-scoring API S is summarised in Table 4. The agricultural landscape
surrounding CSG developments is typically dominated by catle grazing properties which
are notably sustained by the API s that have scored highly in the screening matrix results.
Therefore, the authors have placed a greater emphasis on analysing the catle industry-based
agricultural value chain for promoting coexistence opportunities with the CSG industry.
208 Agricultural Value Chain

Screening matrix criteria Description Question guide

Environmental Environmental impact from • Is this option environmentally sustainable?/Does
sustainability establishment of prescribed this option utilise a waste product of the CSG
industry was considered as industry?
a vital criterion to assess its
viability.

Location/Proximity The distance between the source • Can the end user be in close proximity to the
importance of location of the CSG industry derived source location of the CSG industry derived
service and the end user for service?
beneicial use was regarded as
critical due to increased costs
that may be associated with
transportation.

Reliability There must be a consistent • Will the end user regularly use the CSG industry
uptake of the CSG industry derived service?
derived service by the proposed
option for beneicial use for there
to be an ongoing and reliable
coexistence of all industries.
A point to consider is that
there should be an adequate
production of the service to meet
high level demands from the end
user, or alternatively, there must
be a suicient demand from the
end user industry for a reliable
uptake of the CSG industry
derived service.

Technical feasibility The potential co-existent industry • Is the underlying technology mature and well
should possess a high level known for the functioning/establishment of the
of technological maturity for industry?
a high score in this criterion.
Alternatively, industries with
underlying technologies which
are considered to be under
research and development R&D
phase were scored as having low
technical feasibility.

Community beneit For a high score in this criterion, • Will the community beneit from this industry?
potential industries must
directly inject beneit to the
regional community near the
CSG development. This beneit
can be sourced from increased
employment opportunities,
increased social awareness
of local businesses, and any
facilitation of the regional
community s wellbeing. Those
industries that are regarded as
having a justiiable negative
impact from a social context
have been considered as poor
contributors to the advancement
of the regional community.
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Screening matrix criteria Description Question guide

Social acceptance For there to be co-existence of • Will there be social acceptance for this industry?
other industries alongside the Are there any social repercussions associated with
CSG industry in the nearby this industry?
regional area, there must be
acceptance of receiving the CSG
industry derived service from
the regional community. Those
options that are traditionally
regarded as propagating
community beneit from a social
standpoint have been scored
highly.

Supporting workforce Industries which require a • Is there a supportive workforce already present in
workforce with skills that the regional area of interest for colocation/coexis-
are already present in the tence of this industry?
CSG development area were
considered as a great advantage,
as it would promote the local
employment sector without the
need for upgrading skills or
further training consequently,
these industries were scored
highly.

Table 3. Screening matrix criteria ([39] .

3.1. Crop cultivation–irrigation

As Queensland s CSG operations are distributed across the agricultural landscape, the use
of CSGAW for irrigation purposes, especially in its large production volumes is a practi-
cal option [ , 55]. A successful implementation of the CSGAW irrigation scheme is in the
Australia Paciic LNG Project which is enabling the use of treated CSGAW for drip irrigation
projects involving a hectares ha Pongamia plantation bio-fuel crop [ ].

Some extent of treatment or amendment of CSGAW is required prior to irrigation use [ ].

Defective plant growth paterns have been exhibited by crops that have been experimentally
irrigated with certain untreated CSGAW [4, 13]. The direct application of CSGAW for irri-
gation purposes is therefore impractical, in most cases as it quite often of a poorer quality
than the present water source distributed for irrigation. The successful implementation of
this water management option is highly dictated by the CSGAW quality parameters such
as salinity and sodicity. As a basic minimum requirement, CSGAW must be treated for the
removal of salt prior to use for irrigation purposes [ ]. Irrigating low salt tolerant crops
with raw CSGAW which is saline will cause crusting of soil structure, decreased water
retention ability, and increased soil erosion from runof, in turn defecting healthy crop
growth [13]. Soil chemistry salt levels, pH , climatic conditions, crop salt tolerance ranges,
topography of land are also critical parameters that dictate the extent of water treatment
required prior to irrigation use of CSGAW [4, ]. Table 5 outlines the salt tolerance ranges
for potential crop groups.
210 Agricultural Value Chain

Beneicial use option/Industry Key criterion References

Irrigation Environmental sustainability [4, 13, 47– ]

Location/Proximity importance of location [4, 13]

Reliability [4, 13, 51]

Technical feasibility [13, , ]

Community beneit [4, 51, ]

Social acceptance [4, 51, ]

Supporting workforce [53]

Livestock watering Environmental sustainability [4, , 54, 55]

Location/Proximity importance of location [13, ]

Reliability [ , 13, 57, ]

Technical feasibility [13, 59]

Community beneit [13, 59]

Social acceptance [ , 13]

Abatoir/Meat processing industry Environmental sustainability [ , ]

Location/Proximity importance of location [13, – ]

Reliability [ , , ]

Technical feasibility [ , , , ]

Community beneit [ ]

Social acceptance [ , ]

Supporting workforce [53, ]

Tannery/Leather Environmental sustainability [ –75]

Location/Proximity importance of location [13, , 77]

Reliability [4, 73, 77–79]

Technical feasibility [73, –79]

Community beneit [73, –79]

Social acceptance [ – ]

Supporting workforce [53]

Table 4. Summary of literature for the beneicial use of CSGAW by high-scoring API s modiied from [39] .

While CSGAW that has been treated in accordance with the regulatory standards [13, ] may
be argued as being safe to use for irrigation purposes, there has been some research that sug-
gests that from a long-term perspective, there may be cumulative concentration of salts over
time, which can pose a threat to soil structure. The impact of CSGAW irrigation and its associ-
ated environmental sustainability should be considered on a case-by-case basis as each site
difers in its soil and crop proile [ ]. The average water usage per property and subsequently
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TDS mg/L Water salinity rank Crop suitability Potential crop

< Very low High sensitivity Flowers/fruits

Low Reasonable sensitivity

Medium Reasonable tolerance Clover

High Tolerant crops Corn, Lucerne, sorghum, soy bean

Very high Highly tolerant crops Coton, cereals wheat , barley

> Extreme Usually too saline —

Table 5. Crop suitability based on irrigation water salinity [13, 39] .

irrigation extraction volume allocations should be implemented [4]. Providing CSG-sourced

water for irrigation purposes would help in drought-prooing the land and improving land
productivity increased opportunity to harvest crop and livestock grazing yield , thereby
boosting the economic potential for agribusiness and directly opening up potential invest-
ment opportunities such as food-based tourism [ ].

3.2. Livestock watering

Land areas that are dominated by grazing activities and animal farming require feedlots
facilities for providing fodder and water to animals, prior to slaughter. Such feedlot facili-
ties require an adequate supply of water for animal consumption livestock watering . Using
CSGAW for the feedlots industry assists in providing water supply to drought afected areas
which can allow the functioning of the livestock industry which will directly beneit the meat
processing agriculture value chain to have a supply of livestock for slaughter. The tolerance
range of livestock to the consumption of untreated CSGAW varies Tables 6 and 7 . Typically,

Livestock Total dissolved solids mg/L

No adverse Animals may have initial Loss of production and a decline in animal
efects on reluctance to drink or there condition and health would be expected.
animals may be some scouring, but Stock may tolerate these levels for short
expected stock should adapt without periods if introduced gradually
loss of production
Beef catle ,

Dairy catle

Sheep , , , *

Horses

Pigs

Poultry

*
Sheep on lush green feed may tolerate up to , mg/L TDS without loss of condition or production.

Table 6. Livestock tolerance range for drinking water [4, 39, ].

212 Agricultural Value Chain

TDS mg/L Results

< • Highly tolerable for all livestock

• High satisfactory tolerance for all livestock with some cases of diarrhoea reported for
livestock consuming the water source for the irst time.

• Satisfactory for livestock with some diarrhoea reported for livestock consuming the
water source for the irst time.

• Reasonably safe however should be avoided for pregnant and lactating animals

, • High risk to young ofspring however older livestock may still consume the water
supply

> , • Unsuitable for all livestock

Table 7. Efect of TDS levels on livestock [ , 39] .

the quality of CSGAW is regarded as being within the acceptable limits for livestock watering
purposes [4]. There have been some cases where excess luoride levels in the water non-CSG
sourced supplied for livestock consumption have caused poor dental health e.g. luorosis in
the afected animals [13]. If raw/ untreated CSGAW is deemed unsuitable for direct livestock
consumption, then low level CSGAW treatment must be implemented to eliminate the water
from high TDS and luoride levels, prior to livestock consumption [13].

3.3. Meat processing

There is a growing demand for high-quality meat produce both in the domestic Australian and
international markets. This is representative of the economic revenue associated with meat pro-
duction, where ~ $USD . billion was generated from the sale of Australian meat products [ ].
The Department of Agriculture, Fisheries & Forestry DAFF has reported that there is a lack
of adequate meat slaughtering and processing sites in Queensland, Australia [ ]. New slaugh-
ter and meat processing facilities must be constructed to meet the demand from international
markets for Australia s high-quality meats. Constructing abatoir and meat processing facilities
in grazing corridors would reduce the transportation costs associated with transferring live-
stock from grazing ields to slaughter houses and inject economic revenue to the agricultural
value chain. Furthermore, this colocation would also reduce transportation costs associated
with transferring treated CSGAW for use at the abatoir site. Approximately % of Australia s
total catle numbers are present in Queensland [ ]. Abatoir facilities are heavy users of water
particularly during slaughtering and downstream meat processing stages [ , ]. An envi-
ronmental concern by many already existent abatoirs is the typically high nutrient load of the
eluent water, which cannot be directly used as fertiliser. In such cases, amended CSGAW can
be mixed with the eluent stream as a diluting agent, making it viable as a nutrient rich luid to
be applied on crops. The economic potential of the meat processing industry from both a local
and international standpoint is vital to the growth of Australia s agribusiness sector.

3.4. Tannery: Leather processing industry

The waste brine generated from CSGAW treatment can be beneicially used in leather man-
ufacturing processes. Saline rich feed water e.g. brine is required for curing the hides,
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particularly for antibacterial purposes, as well as for degreasing processes [ ]. The tan-
nery facility may be constructed at a proximal distance from the CSGAW distribution and
abatoir sites, to optimise costs associated with the transportation of water and hides. The
leather processing industry is a viable user of water, however lows treated CSGAW and
brine will be directly related to the number of carcasses processed at the abatoir, which
will in turn have consequences for the number of hides produced for leather manufacturing.
Providing CSGAW and CSG industry-sourced brine to the leather processing industry has
massive potential to inject new economic opportunities for the local economy and creates
avenues for international export if produced on a large scale. Purposefully co-locating tan-
nery facilities with CSGAW distribution sites, has the added advantage of processing recycled
tannery eluent waste through the same water treatment site. This suggested industry would
promote the agricultural value chain and provide a potential coexistence opportunity for both
the CSG industry and an API.

4. Agribusiness promoting industries: Coexistence potential with

coal seam gas

As the native industry in CSG operating areas is the agricultural industry and associated
agribusinesses, it is important to facilitate the growth and progress of those industries. The
concept of a supply chain is services from one entity low to another entity, through a medium
that allows the low of services to take place. In this way, services of one industry can pass
their beneit to another industry, thereby contributing to a supply chain type model. Similarly,
services provided by the CSG industry such as by-product CSGAW to local agribusinesses,
can help to facilitate the agricultural value chain by enhancing food productivity, injecting
investment opportunities, promoting agri-based tourism and trade prospects. Mehreen &
Underschulz [39] propose an agri-based industrial coexistence model which promotes local
synergies between the CSG industry and local agribusinesses. The model given in Figure 5
schematically represents the potential synergies between entities involved in the catle value
chain and the CSG industry, speciically focussing on CSGAW and brine in the case of leather
processing . This co-location of agri-based industries around the CSG developments allows
the growth of the agriculture value chain, increased employment opportunities, regional
infrastructure growth, and enhanced utility infrastructure [33, , ].
The CSG water treatment and distribution facility can deliver CSGAW that has been amended
to the respective regulatory standards for irrigation to nearby agricultural farms. Feedlot
operations are provided with fodder or other feed crop that has been harvested by the agri-
cultural farms in the area. These agricultural farms may even provide livestock e.g. catle
grazing lands. Untreated or amended CSGAW treated in accordance with respective regula-
tory guidelines) (Tables 6 and 7 can be provided to feedlot operations for livestock consump-
tion. The feedlots near abatoir / meat processing facility in the area, can provide livestock for
slaughter. Treated CSGAW provided to the abatoir, can be utilised during sterilisation, evis-
ceration, slaughtering and other meat processing stages. An anaerobic digester AD can treat
the feedlot and abatoir eluent streams high organic load dominated by biologically hazard-
ous material) to produce biogas (methane) and highly concentrated nutrient load (potential
214 Agricultural Value Chain

Figure 5. Suggested agri-based industrial coexistence model based on catle value chain CH4 = methane modiied from
[39] .

fertiliser . Prior to using the fertiliser on agricultural crops, this nutrient load from the AD
must be diluted with treated CSGAW from the CSG water treatment facility. This fertiliser
can be commercialised as a selling product or can be provided to agricultural farms and graz-
ing areas to grow crops. The biogas produced from AD can be processed for abatoir s energy
use equipment or provided to the CSG operator as a supplementary methane source. The
CSG Water treatment facility can provide the saline-rich CSGAW for leather processing in
the tannery facility and also provide local water treatment capacity for otherwise unusable
wastewater from meat processing and tannery operations. Note that other local services tele-
communication and transportation infrastructure, and services in regional towns that have
developed as a result of CSG development will have longer term sustainability if they are also
servicing an expanding co-located agribusiness chain.

The water requirements from each API in Figure 5 were calculated and compared with the
modelled volumes of treated CSGAW for distribution from the CSG water treatment sites.
This is summarised in Figure 6. Some assumptions that were taken into consideration when
calculating water consumption rates are as follows
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• The water required for irrigation kL/day is calculated for ha of agricultural land
[ ]

• The average catle numbers processed at the abatoir are at a rate of catle per day [ ]

• The water consumption for processing one catle hide in tannery operations is litres
L [ ]

• Water consumption per catle head at feedlot operations has been taken as L/ catle
head [ , ]

• Typical water treatment installed capacity of , kL/day which is taken as being avail-
able from the CSG water treatment facility [ ]

Upon calculation of the water consumption in the entities involved within the agri-based co-
existence model, it was noted that the demand kL/day is much lower than the average
water supply capacity. As the local labour workforce has an agri-based skillset, there would
not be a skill shortage for the API s involved in this model. In fact this would help retain
the local agri-based workforce with more job options. The main concern associated with the
sustainability of this coexistence model may be the extent of water supply in the future as
the CSGAW production volumes eventually fall. One option would be to use present piping
and well injection infrastructure built for recharging aquifers, to collect and re-harvest the
CSGAW for a sustainable supply of water into the future, when the CSGAW production has
reached its end of life period.

Figure 6. Typical water consumption by agri-business industries in comparison to coal seam gas water supply.
kL = kiloliters modiied from [39] .
216 Agricultural Value Chain

From an economic and community perspective, there is great value in promoting coexistence
of agri-based industries alongside the CSG industry. However, the progress of amalgamating
agricultural industries with the CSG industry has been slow [9]. There is cumulative efect of
coexisting CSG developments in close proximity to agricultural developments that are compli-
cated by community atitudes, local industries, environmental assets, and regulations [91, ].

In regional CSG development, there is often concern for the preservation of environmental
assets, particularly land and water as they provide economic value, ecological diversity, rec-
reational value, and aesthetic value. As CSG developments are often located on prime agri-
cultural land, land use conlict and stakeholder trust is a concern for gas operators [93]. A lack
of trust in the CSG operator is quite often the most signiicant social issue which underpins
many of the other concerns afecting the progress of promoting coexistence between agri-
based industries and CSG industry [91]. Land access agreements and their associated coni-
dentiality clauses can contribute to the distrust with CSG operators and regulatory bodies.
Some government or CSG operator funded inancial incentive is provided to landowners to
promote greater cooperation [ ]. Farmers with increased distrust in the CSG companies can
have negative opinion of other farmers that have accepted monetary incentive. This can be
viewed as having betrayed the rural fabric that unites farmers and can create a local divide
within the farming community. These social issues must also be addressed in order to beter
promote the coexistence value of the agribusinesses alongside the CSG industry. Strategic
governance by federal and state governments to ensure trust with the local landowners must
take efect to bridge the gap between agri-based industries and the CSG industry.

Analysing the efect of the CSG industry from a social perspective is quite often not as tan-
gible as analysing economic growth or environmental impact [ ]. Perhaps this is atributed to
the ability to beter quantify economic and environmental impacts rather than social indicators
which tend to be more of a qualitative nature. Therefore, conceptualising the potential impact
on the social fabric underpinning the regional communities in the heart of CSG development
regions can be diicult and may pose a barrier to beter understand the efect of the CSG indus-
try on the community from a social perspective. This further complicates analysis of the coex-
istence potential between the CSG industry and agri-based industries. It is therefore important
to consider the cumulative impact of CSG development rather than the isolated impact.

When there are industries that are sharing infrastructure, there is an increased risk to the
normal business case. For industries to coexist and gain mutual beneit, requires mutual trust.
When the business risk is too high to share infrastructure between industries, it makes coex-
istence diicult. In this case, one company owns the infrastructure e.g. CSG industry owned
water treatment facilities and another entity such as a new meat processing plant could beneit
from utilising that business service. If access to water treatment is a critical component of the
business case for the meat processing plant, but not in its control, this could pose an unaccept-
able risk to the establishment of the meat processing plant. For example agricultural wastes are
characterised as having a high organic load, particularly in animal-based agri-based industries
[ , ]. Combining waste streams from such industries, and processing the produced waste-
water through the CSG water treatment facility may increase the risk to the business model,
and may pose as an unnecessary complication for the CSG operator. There must be corpora-
tive legislations that will be designed to remove the business risk the support of the federal
 Economic Synergies from Tighter Agri-Business and Coal Seam Gas Integration 217
http://dx.doi.org/10.5772/intechopen.73195

and state government is mandatory. Adequate planning must be implemented to remove such
risks. The colocation reduces transportation costs dramatically due to the centralised location
of the water treatment facility in relation to all the agri-based industries involved.

If agri-based industries are dependent on water, such a setup proposed in the agribusiness
coexistence model in this paper, would mean that those industries will be heavily reliant on
the CSG industry for providing water for their beneicial use. Due to the long period entailing
the business case, it may be diicult to atract investment. This is perhaps another reason that
has hindered the amalgamation of the CSG industry colocation with the agricultural industry
sooner than later. Therefore, it will be important to ind innovative business models that can
alleviate these business risks and allow investment in a co-existence model where diferent
industries can share infrastructure.

5. Conclusion

Upon investigation, it was found that the agricultural industry can beneit from the by-prod-
ucts and services of the CSG industry, mainly because of its shared location with many CSG
developments and for the fact that the current workforce in these rural areas are related to the
skillset required by new API s therefore, no signiicant skills upgrade would be needed. This
study has analysed the potential of CSGAW supply for the suggested API s irrigation crop
harvesting , livestock watering, meat processing and leather manufacturing. It is regarded
that some form of water treatment is required prior to beneicial use by the API s. Utilising
CSG by-product synergies particularly CSGAW with API s helps maintain the sustenance of
local agri-based industries and strengthens the agricultural value chain in the agriculturally
dominated rural landscape which is native to many areas surrounding CSG developments in
Queensland. The agri-based industrial coexistence model presented, allows for the API s to
utilise the CSG industry s by-products for beneicial use and positively contribute to the sus-
tainability and expansion of the agricultural value chain. It provides the potential as a drought
bufer for landowners, helps to maintain the local skills set and provides long-term jobs.
Providing CSGAW for irrigating crops for both human and livestock consumption can be
regarded as an initiator for expanding the meat processing and leather manufacturing indus-
tries thereby enhancing land productivity and further strengthening the agricultural value
chain. Furthermore, the colocation of API s in close proximity to the CSG water treatment facil-
ity would also ensure maximal use of a centralised utility & telecommunications infrastructure
network. Re-harvesting CSGAW using the present infrastructure built for managed aquifer
recharge, has been suggested as an option to ensure the reutilization of CSG-derived water
for the API s, following the period of post-CSG production. Increased employment and export
trade opportunities, sustainable crop harvesting, facilitating the operation of the local agricul-
tural-based value chain, and generation of other industries agri-tourism, biofuel generation,
local meat and leather processing are prospective opportunities associated with the agri-based
coexistence model. The agri-based coexistence model integrates the agricultural value chain.
In efect, it localises all the involved agri-sourced industries, thereby increasing connectivity of
supply chain processing over short distances, greatly reducing transportation costs that would
218 Agricultural Value Chain

otherwise be associated with transferring raw products to additional locations for further
downstream processing. Conventionally, the agricultural industry and the production of agri-
based products are sourced from rural regions and regional towns, which are connected by
highways. This creates a dispersed value chain. By implementing a more localised network of
entities involved in the agricultural value chain (through the agribusiness coexistence model),
the demand cycle for agri-based products can be beter controlled due to the centralised nature
of the system. On a local scale, the agribusiness coexistence model allows local consumers
to purchase fresh home-grown produce beter availability due to irrigation water supply ,
which further supports local farmers to maintain the locally-grown initiative. Such policy
adoption associated with the agribusiness coexistence model can also have a global impact,
with the export of high-quality meats, and other agri-based food products to international con-
sumers, injecting investment for Australia s economic prospects and further strengthening the
agricultural value chain. The suggested agri-based coexistence model has shown the potential
of concurrently developing CSG operations with agriculture-based industries, whereby the
energy-food nexus can be maintained. Moreover, careful coordination and continuous engage-
ment with the local industry is required for successful API-CSG coexistence to occur.

Author details

Syeda U. Mehreen1* and Jim R. Underschulz

*Address all correspondence to s.mehreen@uq.edu.au

School of Mechanical and Mining Engineering, Advanced Engineering Building, The
University of Queensland, Brisbane, Australia
Centre for Coal Seam Gas, The University of Queensland, Brisbane, Australia

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 Chapter 12

Collaboration in Agri-Value Chains: Building Supplier

Production Capabilities for Productivity Gains
Michael Mugabira and Richard Chivaka
Michael Mugabira and Richard Chivaka
Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.70132

Abstract

This research employed an explanatory case study to compare supplier production

capabilities for enhancing productivity gains between Uganda commercial forestry and
sugarcane sector value chains. Key study results indicated that only 18% of the sugar-
cane farmers achieved the desired industry productivity output of at least 100 t/ha from
their ields, with majority % of the cane growers producing below expected industry
productivity output. In the forestry sector, . % of the farmers achieved the desired
industry performance targets, with . % of the growers performing below expected
performance targets. The major buyers supplier development behaviour as seen in the
difusion of knowledge, skills and appropriate technology along vertical and horizontal
collaborative value chain relationships, explains this paradox. Millers in the sugarcane
sector used contractors to difuse knowledge and skills, which weakened the supplier
production capabilities. In the forestry sector, with the support of development part-
ner agencies, productivity was higher due to efective difusion of knowledge, skills and
appropriate technology to primary producers. This inding strongly points to the need to
implement deliberate supplier development strategies by the development partner agen-
cies and governments, if productivity gains are to be improved within the agri-business
value chains in developing countries.

Keywords: global value chains, productivity, supplier production capabilities, investment

asset speciicity, transactional costs and opportunistic behaviors

1. Introduction

The globalization of economic activities requires an understanding of the dispersed value cre-
ation activities that capture processes across space and time, which in turn precipitate interest

© 6 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons
© 2018 The
Attribution Author(s).
License Licensee IntechOpen. This chapter is distributed
(http://creativecommons.org/licenses/by/ under the
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unrestricted Creative
use, distribution,
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and Attribution
reproduction in any License
medium, (http://creativecommons.org/licenses/by/3.0),
provided the original work is properly cited. which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited.
226 Agricultural Value Chain

in global value chains GVCs . Participation in global value chain is therefore seen as impera-
tive for irm survival and sustainability. This has placed GVC participation on a high-level
policy agenda by development partners as a prescription template for agribusiness produc-
tivity growth and competitiveness of developing countries, especially sub-Saharan Africa.
Development organizations are investing in organization competencies to participate in GVC.1
The World Trade Organization articulates the importance of GVC participations as follows

Any discussion today of international trade and investment policy that fails to acknowledge
the centrality of global value chains GVCs would be considered outmoded and of question-
able relevance” [1].
Despite the interest in GVC participation, intense debate still lingers over root causes of why
some countries are advancing in the global marketplace, while others are failing to do so
[ ]. Supply chain production capabilities to drive productivity gains for growth have been
highlighted by the value chain VC fraternity researchers as an area of interest to investigate
this phenomenon. In Adam Smith s classical work, entitled The Wealth of Nations [ ], Adam
contended that productivity gains are vital to the economy, and it is the true measure of a
nations growth, as more higher output is being accomplished with less minimum inputs .
Capital and labor are both scarce resources, so maximizing their impact is a core concern
of modern business. Productivity gains have been identiied to emanate from technological
advancements such as information and communication technologies, supply chain and logis-
tics improvements, and improved skill levels within the workforce.
This study investigated the presence of productivity gains among primary producers, that
is, the supply workforce farmers or primary commodity producers capabilities in Uganda s
agribusiness value chains. The level of available supply production capabilities determines
the choice of the governance structure to coordinate interirm relationships, which can be
done either through spot markets arm s length transactions and/or cash transactions with
immediate delivery or hierarchies production of goods and services by single integrated
irm [ ]. Ref. [ ] GVC framework, considered to be an extension of Williamson s transac-
tion cost economics TCE theory, ofers intermediary networks or quasi-hierarchies [ ] for
interirm relationship coordination and production organization in the form of modular, rela-
tional, and captive value chains. The existence of the various networks for the organization of
production and coordination of interirm relationships implies the existence of both vertical
and horizontal linkage mechanisms.
Porter [6] argued that the existence of comparative advantage, economies of scale, and excessive
vertical integration are no longer sources of competitiveness and innovation. He contended that
close linkages between buyers, suppliers, and other institutions are now the source for irm,
industry, and sector competitiveness, as relected in productivity [ ]. This statement airms

For example, World Bank WB , African Development Bank AfDB , United States Agency for International Develop-
1

ment USAID , Department for International Development DFID , International Development Research Centre IDRC ,
Trust Africa, European Union, and African Union
 Collaboration in Agri-Value Chains: Building Supplier Production Capabilities for Productivity Gains 227
http://dx.doi.org/10.5772/intechopen.70132

that the level of strength of collaborative relationships in both vertical and horizontal linkages
is the source for productivity gains.

According to Navdi and Halder [8], the cluster theoretical approach assists in assessing
the gains of clustering i.e., grouping similar objects as a result of joint action, while the
VC approach explores vertical linkages between irms and external actors. Although both
approaches ofer complementary synergies to each other, they do not elaborate on the mea-
sures applicable in assessing the strength of the interirm relationships [ , 9]. This missing
link is illed by the transaction cost economic approach [ ], which analyzes investment trans-
actional costs involved in interirm relationships. Williamson [ ] identiied the transactional
costs in the form of speciic investment asset speciicity, uncertainty, frequency of transactions,
and opportunism. In this study, we contend that building supplier production capabilities
involves undertaking investment asset speciicity in terms of provision of inputs, knowledge,
and skills transferred to primary producers with a purpose of building production capabili-
ties for productivity gains. It also involves transactional costs related to searching, monitor-
ing, and enforcement of contracts by either party, costs considered as eroding proit margins.
More investments in building mutual trust relationships are crucial in order to minimize
opportunism. This study adopted these measures in assessing the strength of collaborative
vertical and horizontal linkages for the building of supplier production capabilities.

The purpose of this research was to contribute to the understanding of the link between the
supplier/growers production capabilities and productivity growth in the GVC of sugarcane
and forestry sectors and as such ofer some key insights into the emerging GVC theory. This
was achieved by investigating the strength of value chain practices within both vertical and
horizontal linkages between growers and buyers/millers and among growers. Therefore, this
study undertook a comparative assessment of supplier production capabilities for achieving
desired industry productivity gains in the commercial sugarcane sector relative to the forestry
sector in Uganda. The following research questions guided the inquiry

1. How does investment asset speciicity in vertical and horizontal linkages explain perfor-
mance diferences between commercial sugarcane and forestry sector value chains?

2. How does coordination of transactional costs in vertical and horizontal linkages explain
performance diferences between commercial sugarcane and forestry sector value chains?

3. How do actors behaviors in vertical and horizontal linkages explain performance difer-
ences between commercial sugarcane and forestry sector value chains?

2. Methodology

This research employed a case study approach as the major research strategy, with a survey
complementing the results of the case study. The purpose of this research was to contribute to
emerging GVC theory [ ] and hence suitability of case study [10].
228 Agricultural Value Chain

Field-based and multiple data collection methods questionnaire survey, interviews, archives,
and observations were used to gather empirical data to address the research questions and
for triangulation of results [10– ].

Industry-speciic information sources such as Uganda Sugar Cane Technologist Association

USCTA , Uganda Sugar Manufacturers Association USMA , and Sawlog Production Grant
Scheme SPGS project provided expected industry productivity baselines [ – ]. The total
number of registered producers was of which where functional as per SPGS per-
formance report / . Kinyara Sugar Works Limited provided growers productivity
data for the years / to / inancial years. The total number of out-growers
in Kinyara Sugarcane Cluster was approx. , of which were registered and approxi-
mately commercial producers were considered functional. The total number of anticipated
respondents participating in the study was survey tool and qualitative tool or inter-
views , from both forestry and sugarcane value chains. The response rate was to the ques-
tionnaires and to the interviews in forestry industry and to the questionnaires and to
the interviews, respectively. The overall response rate was %. The sample size of was
generally found appropriate for studies of this nature, in line with [10] recommendation of
cases between and as appropriate.
The cases involved in the entire value chain as the principal unit of analysis are explored and
analyzed at three sublevels micro primary producers/growers enterprises , meso industry
experts, miller s representatives, and association executives in the value chain , and macro
assessment of national policies and regulations . Principal component analysis was run for
purposes of grouping items. Empirical data was analyzed using within case analysis that
enabled intimate familiarity with each case as stand-alone entity and cross-case patern anal-
ysis that enabled constant comparison of theory and data iterating toward a it between
theory and data. Figure 1 represents a summary of the methodology procedure.

2.1. Measures of productivity gains

Adam Smith [ ] in his book of the wealth of nations identiied three productivity measures,
namely, farm output, manufactured goods, and labor to produce goods. This study was inter-
ested in productivity gains in agribusiness and therefore considered farm output as the lead-
ing measure for farm enterprise productivity. The study adopted country-speciic industry
reports published by the Uganda Sugar Manufacturers Association USMA which consider
farm output of 100 tons/ha as the baseline productivity measure of sugarcane maturity of
months [ ]. The forestry sector productivity reports were obtained from the Sawlog
Production Grant Scheme, assessing performance of growers and providing indicative
desired contract performance measures of 90% in agronomical practices.

2.2. Measures of strength in vertical and horizontal collaboration for building supplier
production capabilities

In the context of value chain discipline, vertical linkages represent conduits for the transfer of
learning, skills, information, technical, inancial, and business services from one irm to another
along the value chain. On the other hand, horizontal linkages represent longer-term cooperative
 Collaboration in Agri-Value Chains: Building Supplier Production Capabilities for Productivity Gains 229
http://dx.doi.org/10.5772/intechopen.70132

Figure 1. Research methodology low chart.

arrangements among irms that involve interdependence, trust, and resource pooling in order
to achieve joint action or jointly accomplish common goals.
The transactional cost approach provides measures for assessing the strength of the market
coordination mechanisms [ ]. The measures include investment asset speciicity costs such as
knowledge, skills, and physical production inputs , coordination transaction costs timely pay-
ments, information search, contract monitoring, and enforcement , frequency of the transac-
tions, and quality of relationships, that is, mutually beneicial or exploitative relationships. This
study adopted these measures except frequency of transactions in assessing the strength of verti-
cal and horizontal collaboration in building supplier production capabilities in the value chains.

3. Results and discussion

Research question 1 How does investment asset speciicity in vertical and horizontal linkages
explain performance diferences between commercial sugarcane and forestry sector value
chains?
230 Agricultural Value Chain

The indings of the study suggested strong collaborative vertical linkages for building sup-
plier production capabilities, as can be atested with the two-sample t-test. A comparison
of the mean value for asset speciicity in vertical relationships revealed that there was a sig-
niicant diference in the mean rating by sector forestry-sugarcane , Pr T < t = . . This
means that there was a stronger collaborative relationship between millers and producers
for inputs support, knowledge, and skills transfer in the sugarcane sector compared to the
forestry sector. However, a nuanced view by qualitative data revealed that transfer of knowl-
edge, skills, and inputs support was through contractors and not directly to primary sugar-
cane producers as evidenced by the quotations below

“Planning is one of the biggest problems. The basic thing which a farmer gives is land… since farmers get
inputs and using contractors for land preparation, harvesting and transporting, this creates sluggishness.
i.e. some farmers think cane is for Kinyara, but now we are telling them to take it as a business so that they
can plan, and save. Further, many farmers have no records…we hope that if farmers take up operations,
they will develop capacity and protect their investments” Out-Grower Manager, Sugar Mill .

The out-grower manager s statement was also validated by a primary sugarcane producer as
stated below

“Under the previous miller, harvesting, loading and transporting were done by the farmers’ company
– which was the business arm of the association. When current management came on board, this was
abolished and they preferred to use contractors. With the previous miller knowledge was gained; we
used to have courses in Kampala which was helpful, however, with the current miller not much has been
gained” Respondent Sugar .

Therefore, the qualitative indings above suggest weaker collaborative relationships for build-
ing production capabilities between millers and growers in the sugarcane sector. Further, the
quotation below corroborated the quantitative indings of weak collaborative relationships
for building production capabilities between millers and growers in the forestry sector.

“No miller is supporting growers, Nile Ply just buys from growers but without supporting them”
Program Manager, SPGS/Forestry .

On the other hand, the forestry sector had strong collaborative horizontal linkages existing
with respect to investment asset speciicity. A comparison of the mean value for asset invest-
ment speciicity in horizontal relationships revealed that there was a signiicant diference in
the mean rating by sector forestry-sugarcane , Pr T > t = . . This means that there was
a stronger collaborative relationship among producers and/or producer support agencies for
inputs support, knowledge, and skills transfer in the forestry sector than the sugarcane sector.
The above quantitative data inding was supported by qualitative data indings below

“SPGS support has enabled at least 30% to improve production planning skills…. The change is more
than signiicant. availability of forest valuation guidelines also gives growers basics on what price they
cannot go below (reserve price) during negotiations in order to realize a return on their investments”
Program Manager SPGS/Forestry .

The quote above suggests that transfer of knowledge, skills, and inputs support occurred
directly to forestry producers from development agencies. This was evidenced by the t-test
results that showed very strong signiicant diferences forestry-sugarcane , Pr T > t = . ,
regarding access to both technical and inancial support from farmers development agencies.
 Collaboration in Agri-Value Chains: Building Supplier Production Capabilities for Productivity Gains 231
http://dx.doi.org/10.5772/intechopen.70132

This inding is also corroborated by both foreign and local tours see Figures 2 and 3 orga-
nized by SPGS a development support agency in conjunction with UTGA the National
Farmers Association, whose aim is to equip forestry growers with technical knowledge for
building production capabilities.

The indings render support for strong horizontal collaborative relationships for building
production capabilities. Findings also complemented with the evidenced adduced in the quo-
tation below

“Growers have acquired technical competency in plantation establishment, maintenance such as thin-
ning, pruning, marking and harvesting….Good relationships exist, especially those under UTGA.
When we call cluster meetings, we see the will to share, cooperate, and avail their plantations for study”
Association General Manager, UTGA/Forestry .

Figure 2. Ugandan forestry commercial farmers learning and nurturing of quality tree seedlings. Source Primary ield
data courtesy of SPGS study tour Mondi nursery facility South Africa .

Figure 3. Ugandan forestry commercial farmers on networking and information sharing testing the strength of the pole
required by the market. Source Primary ield data courtesy of UTGA/SPGS local study tour New Forestry Company
Ltd pole treatment plant in Uganda.
232 Agricultural Value Chain

The statement by one of the growers below did not discount the above statements
Yes, knowledge through newsleters, client meetings… You access information on prices, even if some-
one (buyer/miller) comes with a monopoly, but he realises that you are able to chip in from an informed
position” Respondent, Forestry .

However, with respect to sugarcane sector, qualitative data further supported quantitative
data that there were no gains in building production capabilities from horizontal collabora-
tive linkages as evidenced with the quotation below

Percentage wise in knowledge and skills transfer is still low, … the previous associa-
tion KSGL incurred liabilities, hence farmers lost the trust but now picking up slowly
Association Chairman, Sugarcane Sector .

Our observations on the question about the inluence of investment asset speciicity in vertical
and horizontal linkages on performance diferences between commercial sugarcane and for-
estry sector value chains is as follows. The sugarcane sector exhibited high investment asset
speciicity in vertical linkages between primary producers and millers. This was evidenced by
quantitative data which suggested strong collaborative vertical linkages for building supplier
production capabilities. However, a nuanced view of the qualitative data pointed to the exis-
tence of production capabilities in the vertical linkages but residing in the use of contractors
rather than the cane growers themselves. This inding was supported by a study of small-scale
growers in the South African sugar industry that arrived at similar results [18]. Therefore,
this inding suggested that growers were heavily dependent on the millers and contractors
employed by the millers to ofer services to the contracted growers. It was this level of high
dependency of growers upon millers that could ofer plausible explanations for failure to
develop production capabilities among most growers in the Ugandan sugarcane sector.

On the other hand, quantitative data revealed a stronger collaborative relationship among
producers and/or producer support agencies for availing inputs, knowledge, and skills
transfer in the forestry sector than the sugarcane sector. This inding was corroborated by
qualitative data and validated by observatory ield data, which conirmed that the trans-
fer of knowledge, skills, and inputs support occurred directly to forestry primary produc-
ers. This was done by development partner agencies through provision of both technical
and inancial support accompanied with foreign and local exposure learning platforms see
Figures 2 and 3 , with a purpose of building production capabilities for achieving produc-
tivity gains. This inding supports the GVC literature, as argued by GVC proponents such
as [19, ] that a combination of technical and investment support in highly governed chains
explains how relatively underdeveloped regions become major export producers in a short
period of time. They cited the example of the Brazilian shoe industry in the s and the
Vietnamese garment industry in the late s. Made a similar observation in his study of
the textile and garment supply chain in South Africa [ ]. He found out that companies that
had closer collaboration in training and assistance atained a higher difusion of skills in a
shorter time to achieve supply chain eiciency levels required to compete efectively. This
scenario can be described as a true relection of Uganda s evolving commercial forestry sec-
tor, which enjoys support from development agencies and producer associations that links
both primary producers and millers.
 Collaboration in Agri-Value Chains: Building Supplier Production Capabilities for Productivity Gains 233
http://dx.doi.org/10.5772/intechopen.70132

Further, the proponents of the cluster theoretical framework argue that difusion of produc-
tion capabilities is not only limited to GVC participants, but there is also knowledge and
skills spillover in a geographical area and/or localities of business operations [8, – ].
They argued that impact of knowledge and skills spillover accounts for the rise of entrepre-
neurship in various forms such as functional upgrading, new entrants in the existing clusters
and value chains, and the start of new parallel competitive value chains. This entrepreneurial
potential can be said to be available especially in Uganda s commercial forestry value chain
sector, only if other agro-commodities can have a ready market for commercial production.

The indings above explained the investment asset speciicity in vertical and horizontal link-
ages for interirm relationships. However, as irms engage in the exchange process, they may
be vulnerable to coordination transactional costs and opportunism by either party involved
in the execution of the contracts. The next section presents and discusses comparative results
with respect to vulnerability to transactional costs in both vertical and horizontal collabora-
tive relationships for building production capabilities in order to achieve productivity gains.
Research question 2 How does coordination of transactional costs in vertical and horizontal
linkages explain performance diferences between commercial sugarcane and forestry sector
value chains?

A comparison of the mean value for transactional costs in vertical relationships shows
that there was a moderate diference in the mean rating by sector forestry-sugarcane , Pr
T<t = . . This means that transactional costs such as delayed payments from millers to
producers and information search for production costs were perceived to have been more of
a challenge in the sugarcane sector than the forestry sector. This inding was supported by
qualitative data suggesting weaker collaborative relationships between millers and growers
in the sugarcane sector, as per quotations below

“Enough money and/or cyclic revenue is needed to run the business but KSL has a tendency of late pay-
ments going between 60–90 days. The delayed payment causes unnecessary interest accruals resulting
into marginal proits Respondent, Sugarcane Sector .

Initially we used to give cash advances to purchase plantations, and provided transport.
However, the system was abused whereby some suppliers diverted the funds into other busi-
nesses… currently, we pay them within ive working days after delivery to enhance their cash
low and introduced suppliers to Eco-bank for loan access. Right now the suppliers are self-
suicient, they can support themselves (Plant Manager, Forestry Mill .

The main challenge is the continuous reshule of ministers; before a minister gets acquainted with the
industry another one is appointed. Even now the permanent secretaries are being transferred. At one
time we broke down the costs to Minister Mukwaya. The minister requested the miller to give her the
breakdown, but the miller refused. Recently, another meeting was organised with the Ministry of Trade,
Industry and Cooperatives (MTIC) involving both out-growers and millers. The out-growers gave their
cost breakdown of approx. 60 percent but the miller declined to give a cost breakdown” Respondent,
Association Executive Member and Opinion Leader Sugar .

The quotations above revealed that cost of searching for production costs of the value chain
did not only impact upon transactional costs but also the reluctance by millers to reveal their
production costs suggested possibility of opportunistic behaviors.
234 Agricultural Value Chain

Our observations therefore are that some level of vulnerability to transactional costs between
millers and growers in the sugarcane sector exits, compared to the forestry sector. However,
similar results were obtained in the horizontal relationships in the forestry sector in com-
parison to the sugarcane sector. Using two-sample t-test, a comparison of the mean value
for transactional costs in horizontal relationships shows that there was a slight diference
in the mean rating by sector forestry-sugarcane , Pr T > t = . . This means that there
was suggestive evidence of minimum occurrence of transactional costs among producers
in the forestry sector than the sugarcane sector. This quantitative inding was validated by
the qualitative data inding below, which suggested occurrence of transactional costs as a
result of replacing labor force taken by another grower without the consent of the labor force
owner
I think we trust each other because we have same common ground. I have not seen many conlicts in
client meetings, except one time a farmer accused his neighbors of stealing his workers.” Respondent,
Forestry .

Therefore, on the question of the impact on performance diferences between commercial

sugarcane and forestry sector value chains regarding coordination of transaction costs within
vertical and horizontal linkages, we concluded as follows. Moderate transactional costs such
as information search costs and delayed payments from millers to producers were more of a
challenge in the sugarcane sector than the forestry sector. This inding supported existence
of weaker collaborative relationships between millers and growers for building production
capabilities in the sugarcane sector. In the forestry sector, quantitative data revealed evidence
of minimum occurrence of transactional costs among producers compared to the sugarcane
sector. This quantitative inding was corroborated by the qualitative data inding which sug-
gested occurrence of transactional costs as a result of replacing labor force taken by another
grower without the consent of the labor force owner.

The above indings demonstrate that both vertical and horizontal collaborative relationships
between primary producers and millers and among primary producers in the sugarcane and
forestry industry value chains were vulnerable to some levels of transactional costs. Evidence
of transactional costs suggests existence of opportunistic behaviors [ , ]. Opportunistic
behaviors were investigated by this study in the next question below.

Research question 3 How do actors behaviors in vertical and horizontal linkages explain
performance diferences between commercial sugarcane and forestry sector value chains?

Vulnerability to transactional costs is mainly atributed to opportunistic behaviors. A com-

parison of the mean opportunism in vertical relationships revealed that there was a slight dif-
ference in the mean rating by sector forestry-sugarcane , Pr T < t = . . This means that
there was suggestive evidence of opportunism causing mistrust between millers and produc-
ers in the sugarcane sector than the forestry sector. This inding was validated by qualitative
data indings below
“Fairly good trust… however there is lack of transparency on the weigh bridge” Association Chair-
man, Sugarcane Sector .
 Collaboration in Agri-Value Chains: Building Supplier Production Capabilities for Productivity Gains 235
http://dx.doi.org/10.5772/intechopen.70132

This above quotation was supported by the miller s representative quotation below suggest-
ing some level of opportunistic behaviors along the sugarcane value chain.

“Small farmers are mainly the problem because at times they sell the fertilisers, but with commercial
farmers, this is not quite rampart” Agricultural Engineering Manager, Sugar Mill .

Generally, the inding of suspicious opportunistic behaviors between growers and millers val-
idates the existence of weak collaborative relationships for building supplier production capa-
bilities. On the other hand, a comparison of the mean value for opportunism in the horizontal
relationships shows that there was no signiicant diference in the mean rating by sector for-
estry-sugarcane , Pr T > t = . . This meant that manifestations of opportunistic behaviors
were not quite rampart among producers in both the forestry and sugarcane sectors.

Therefore, in answering the question on how actors behaviors in vertical and horizontal
linkages explain performance diferences between commercial sugarcane and forestry sector
value chains, we observed the following. Quantitative data revealed suggestive evidence of
opportunistic behaviors causing mistrust between millers and producers in the sugarcane
sector than the forestry sector. This inding was validated by qualitative data that suggested
the source of mistrust being due to lack of transparency of the miller s weighbridge and pos-
sibility of diverting inputs by growers to other farm activities rather than sugarcane growing.

The above indings show that vertical collaborative relationships between primary produc-
ers and millers in the sugarcane industry value chains were characterized by suspicion, thus
afecting mutual trust as compared to the forestry sector value chain. This inding is in agree-
ment with similar studies, which found out that mutually beneiting relationships develop
trust [ , ], while exploitative relationships exhibit low levels of trust and tend to be charac-
terized by tensions that afect productivity gains in the value chains [ – ]. This was found
to be true in Uganda s sugarcane sector value chain. In such circumstances, the GVC theo-
retical framework recognizes that reshaping of the value chain governance structures lowers
opportunistic behaviors accounting for vulnerability to transactional costs [ , ]. Our inding
on this question also points to the potential to increase participation market powers by the
Uganda s sugarcane primary producers through shifting away from a captive value chain
governance structure characterized by high levels of dependency, to either a modular or rela-
tional value chain governance structures, characterized by less dependency.
On the other hand, indings of the study revealed that manifestations of opportunistic behav-
iors were not quite rampart in the horizontal relationships among primary producers in both
the forestry and sugarcane sectors. This inding indicates that there are opportunities for pri-
mary producers especially in the sugarcane sector for joint action investment strategies in
order to minimize opportunistic behaviors causing transactional costs in vertical linkages.

4. Conclusion

The key indings of the study revealed that the sugarcane sector exhibited high investment
asset speciicity in vertical linkages between primary producers and millers compared to the
236 Agricultural Value Chain

forestry sector. This inding suggested strong collaborative vertical linkages for building sup-
plier production capabilities to enhance productivity gains. However, a nuanced view of the
qualitative data pointed to the existence of production capabilities in the vertical linkages
but residing in the use of contractors rather than the cane growers themselves. On the other
hand, stronger collaborative relationship existed among producers and/or producer support
agencies for availing inputs, knowledge, and skills transfer in the forestry sector than the sug-
arcane sector. This inding was corroborated by qualitative data and validated by observatory
ield data conirming building of production capabilities among forestry primary produc-
ers for productivity gains. Findings of this study revealed that control of the difusion of
knowledge and skills transfer not directly to primary producers, but through the use of con-
tractors, was a strategy that enabled the miller s to continuously earn higher rents by ofering
low commodity prices, inputs, and services at high prices to the sugarcane primary producers
through maintenance of weak supplier production capabilities. Opportunistic behaviors
accounted for the prevalence of suggestive evidence of transactional costs between miller s
and growers in the sugarcane sector compared to the forestry sector. The above key indings
also ofered plausible explanations for the observed performance diferences in achieving
industry productivity benchmarks between sugarcane and forestry sector primary producers.
Study results indicated that only % of the farmers achieved the desired industry productiv-
ity output of at least t/ha from their cane ields, implying that majority % of the cane
growers were producing below expected industry productivity output. This was in contrast
to the forestry sector whose study results indicated that . % of the farmers achieved the
desired industry performance targets, suggesting that only . % of the growers performed
below expected performance targets.

5. Theoretical and policy contributions

Theoretically, this study has brought into insight new research frontiers. The dominant
theoretical argument within the GVC discipline is that while highly governed structures
contribute to fast acquisition of production capabilities, they can also create barriers for func-
tional upgrading and/or investments in forward linkages [19, ]. This is because the lead
irms protect their core capabilities such as acquisition of design and marketing capabilities
from competition, in order to sustain earning higher rents. The indings in our study added
another perspective by showing that the lead irms created barriers in backward linkages by
controlling the difusion of knowledge and skills transfer not directly to primary producers,
but through the use of contractors. This strategy enabled the miller s to continuously earn
higher rents by ofering low commodity prices, inputs, and services at high prices to the pri-
mary producers through maintenance of weak supplier production capabilities. Therefore,
this inding can be classiied as a major contribution to the emerging GVC theoretical frame-
work [ ], with respect to lead irms control of the difusion knowledge and skills for building
supply production capabilities in backward linkages, with intent for sustained earning of
strategic rents.
This study provides insights to government and development partners policy regarding
development of supplier production capabilities for productivity growth in the context of
GVCs as follows
 Collaboration in Agri-Value Chains: Building Supplier Production Capabilities for Productivity Gains 237
http://dx.doi.org/10.5772/intechopen.70132

1. Policy program interventions need to be designed in a way that knowledge and skills will be
made available to the primary producers. This will enable them to strengthen their production
capabilities for efective participation and upgrading in the GVCs in developing economies.

2. Policy programs should be supported by the formation of robust primary growers asso-
ciations and/or cooperatives that provide a platform for joint action to efectively partici-
pate in GVCs.

Acknowledgements

Appreciation to the European Union, the Government of Norway and the Government of
Uganda for the technical and inancial support to Sawlog Production Grant Scheme SPGS
and Uganda Timber Growers Association UTGA under the SPGS II Grant FED/ / -
. Management of Kinyara Sugar Works Limited provided the necessary information and
accessibility to research participants. This paper is part of a PhD Program at the Graduate
School of Business, University of Cape Town.

Author details

Michael Mugabira* and Richard Chivaka

*Address all correspondence to mmugabira@gmail.com

Graduate School of Business-University of Cape Town, Portswood Road, Green Point, Cape
Town, South Africa

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[ ] Schmiz H. Learning and earning in global garment and footwear chains. The European
Journal of Development Research. 18 -
 Chapter 13

A Review of Supply Chain Prices Analyses with

Emphasis on Perishable Markets
Fabio Gaetano Santeramo and
Leonardo Di Gioia
Fabio Gaetano Santeramo and Leonardo Di Gioia
Additional information is available at the end of the chapter
Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.69451

Abstract

Prices at diferent levels of the supply chain are linked through long-run relationships
and tend to difer by the marketing costs. However, several aspects intervene in making
price dynamics along the supply chain quite complicated and erratic. In particular, sev-
eral issues on how marketing margins evolve over time and across commodities, as well
as how prices are transmited along the supply chain are still debated. The implications
for the understanding of the economy, the management of the irms, and the regulations
of the markets are important and pushed scholars to dedicate particular atention to these
topics. In particular, how prices evolve in the supply chain of perishable products is an
intriguing challenge that has stimulated a hot debate. We review the literature on price
analyses, marketing margins, and vertical price transmission with particular emphasis
on perishable products fruits and vegetables in order to conclude on the open issues
worth further investigation.

Keywords: agricultural product, marketing margins, price transmission, supply chain

1. Introduction

The interest on prices dynamics in perishable markets and the number of studies focused on
these topics have rapidly increased during last decades [1–7] the implications for agricultural
markets, for entrepreneurial strategies, and for producer and consumer welfare are relevant
and worth for a deep investigation.

The main and simple framework to analyze price dynamics is the well-known Law of One
Price LOP which states that prices in separated markets tend to difer by no more than

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medium, (http://creativecommons.org/licenses/by/3.0),
provided the original work is properly cited. which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited.
242 Agricultural Value Chain

shipping costs incurred in moving a good from one market to the other. A formal deinition
is provided by Stigliz [8] who stated there is a uniform price in the market and price dif-
ferences are quickly eliminated by arbitrage [opportunities] . If price spreads exceed trans-
action costs regardless the trade direction arbitrageurs’ activity will reduce the spread
leting prices move toward the equilibrium condition.1 Similarly, prices along the supply
chain are linked by long-run relationships and tend to difer by the marketing costs, that
is, the costs to market the good. In other terms, prices at retail level difer from prices at
farm level by the additional costs necessary to market the good. While it is so simple to
be described, it is very complex in reality. Market movements, entrepreneurial strategies,
physical constraints and biological dynamics make price dynamics erratic. Studying how
prices evolve along the supply chain, across diferent levels, is an intriguing challenge. Not
surprisingly, the interest in understanding these aspects has rapidly increased during the
last decades. It is important to distinguish two aspects of interest the evolution of market-
ing margins and the vertical transmission of prices. With marketing margins, we refer to the
spread between prices observed at diferent stage of the supply chain, while the concept of
vertical price transmission regards price dynamics and the transmission of shocks along the
supply chain.
The present chapter reviews the literature on price analyses, with particular focus on studies
on perishable food markets fruits and vegetables . We review studies on marketing mar-
gins and studies on vertical price transmission and conclude by deepening on some of the
main issues related to marketing margins and vertical price transmission in perishable goods
markets.
The reminder of the chapter is as follows the section two focuses on aspects of marketing
margins the subsequent section focuses on vertical price transmission section four is devoted
to the analyses of marketing margins and vertical price transmission in perishable markets
we conclude with comments and relections for future studies.

2. On marketing margins

The terms marketing margin refer to the diference between the retail price, paid by con-
sumers for a inished product, and the farm price of raw products. For instance, assuming
raw tomatoes are sold at . €, the marketing margin for processed tomatoes, say sold at €,
would be the diference of the two prices in our example the marketing margins equals . € .
Clearly the importance of analyzing marketing margins relies on the possibilities to analyze
how market equilibria evolve at diferent stages of the supply chain.
Myers et al. [ ] review a century of research on marketing margins, starting from the seminal
analyses of Waugh [11] based on descriptive statistics aimed at assessing the size of marketing
margins, and concluding with the description of Schroeter and Azzam [ ] and Holt [13] on
the impact of risk on marketing margins.

A recent review on these issues is provided by Santeramo and Di Gioia [ ].

 A Review of Supply Chain Prices Analyses with Emphasis on Perishable Markets 243
http://dx.doi.org/10.5772/intechopen.69451

Wohlgenant [14] provides a complete survey on theoretical and empirical issues in marketing
margins analysis underlying some of the questions of interest for researchers and policy-
makers e.g., are margins too large/small compared to farm and retail prices? Why they dif-
fer among products/space/time? How quickly are price shocks transmited along the supply
chain? What are the determinants of margins movements? etc. .
The basic model to analyze marketing margins is a two-market static model subject to demand
and supply shifters i.e., exogenous variables capable of increasing or decreasing the whole
market demand, or market supply . It is generally used for comparative statistics [ , 16] as
it allows to conclude on margins dynamics under diferent economic assumptions e.g., ixed
and variable input proportions, markup pricing, etc. . However, Gardner [ , p. ] pointed
that no simple markup pricing rule can depict the relation between the farm and retail prices, and
generally, the empirical approaches lack of theoretical foundations.
Wohlgenant [14] revises the possible factors afecting marketing margins an extensive litera-
ture has focused on the role of market power in order to provide theoretical [ , 17– ]
and empirical evidences [ – ] other factors that afect farm and retail prices spread are
price risks [ , 13], technical and structural changes [ , ], product quality and seasonality
[ , ]. Wohlgenant’ survey concludes that the approaches to model marketing margins are
still inappropriate since they ignore signiicant economic aspects namely the input substitut-
ability between farm input and other inputs in producing retail products , and more research
is needed either to understand the role of the mentioned factors on marketing margins as
well as the role of actual trends in agricultural sector e.g., increasing vertical integration and
coordination, growing expenses in advertisements, introduction of new food safety regula-
tions, etc. .
Traub and Jayne [ ] investigated how price de regulation inluenced the size of the marketing
margins of maize ion South Africa. They found that deregulation leads to an increase in market-
ing margins of % the authors admit their results are not supported by the literature and may
prove to be disruptive of existing evidence. More recently, Dawe and Maltsoglou [ ] investi-
gated how price increases afect the welfare impacts, and what is the inluence of marketing
costs i.e., the costs to market the goods . They show the importance of assuming a correct func-
tional form for marketing costs and found that in a vast majority of cases, it is safer to assume
that marketing costs are ixed, rather than proportional.

3. On vertical price transmission

Meyer and Cramon-Taubadel [ ] present the state of the art of the literature on asymmetric
price transmission discussing on the theories and empirical aspects. The adjustment to price
shocks along the supply chain, from producer to wholesale and retail levels, and vice-versa, is
an important aspect of the functioning of supply chains. Asymmetries in vertical price trans-
mission may be due to several aspect of the market structure. For instance, imperfect price
transmission may be caused by market power that induces oligopolistic behavior. The conse-
quences of vertical price transmission are worth investigation in fact, the asymmetry and the
244 Agricultural Value Chain

speed of price transmission from farm level to inal consumers result in positive or negative
welfare efects for economic agents.

The literature on vertical price transmission is focused on four fundamental topics [ ] the
magnitude of how price shocks are vertically transmited along the supply chain the speed
of transmission of such shocks the symmetric or asymmetric nature of price transmission
the direction of price transmission in terms of whether shocks are transmited upwards or
downwards.

According to Meyer and Cramon-Taubadel [ ], there are two main causes of asymmetries in
vertical price transmission imperfect competition i.e., market power and adjustment costs.
Moreover, asymmetries in price transmission seem to be related to political interventions,
asymmetric information and inventory management.
Bailey and Brorsen [31] argue that no a priori explanations arising from the degree of market
power may help predicting the positive or negative nature of asymmetries in price transmis-
sion several authors [ –36] conclude that market power may induce asymmetric transmis-
sion, with positive asymmetric price transmission being induced by monopolistic behavior
i.e., increases in input prices tend to squeeze marketing margins moreover, decreases in
output prices are likely to be transmited faster and/or more completely than increases in out-
put prices . Lately, McCorriston et al. and Lloyd et al. [37– ] develop a framework to show
how market power may lead to imperfect price transmission. Indeed, also in oligopoly, both
positive and negative asymmetric price transmission may occur. Summing up, the literature
still lacks of a solid link between market power and asymmetry in price transmission [ ].
Another major explanation for asymmetric price transmission APT is provided by asym-
metric adjustment costs arising when irms change the quantities and/or prices of inputs
and/or outputs. Bailey and Brorsen [31] conclude that positive asymmetric price transmission
may be induced by the easiness for irms facing output reduction to disemploy inputs rather
than to augment production by recruiting new inputs. Diferently, Ward [ ] concludes that
negative asymmetric price transmission is likely to occur in markets of perishable products
retailers tend to hesitate to raise prices as they fear potential reductions in sales due to wastes
for spoilage. Heien [41] raises arguments against Ward’s conclusions he argues that changing
prices is less problematic when dealing with perishable products rather when dealing with
storable products in that the price adaptation for products with long shelf-life requires high
time costs and losses of goodwill. Finally, Pelzman [ ] inds no evidence of a relationship
between menu costs and APT, which might rather depend by the presence of high menu costs
supported in fragmented supply chains. The strategic management of inventories may help
to adapt production to exogenous shocks as a result, the managerial strategies on inventories
have been mentioned as possible cause of asymmetric price transmission. Balke et al. [43]
argue that accounting methods such as irst-in-irst-out may lead to asymmetric price trans-
mission. Blinder [44] and Reagan and Weizman [ ] argue that inventory management leads
to positive APT. In particular, Reagan and Weizman suggest that in periods of low demand

The adjustment costs are deined as costs associated with changing retail prices and subsequently adapting retail logis-
tics, wholesale costs and sales e.g., advertisement and relabeling costs, storage and volume discounts .
 A Review of Supply Chain Prices Analyses with Emphasis on Perishable Markets 245
http://dx.doi.org/10.5772/intechopen.69451

irms will adjust the quantity produced and increase inventory rather than decrease output
prices, increasing prices during periods of high demand. In summary, also for adjustments
costs, the conclusions are ambiguous and sometimes contradictory, with some authors pro-
viding arguments for positive, and others for negative APT.

Another aspect that merit atention is the potential impact of government interventions, in
terms of producer subsidies. Gardner [ ] concludes on their role in inluencing the asymme-
tries in farm-to-retail price dynamics, and evidence on such a mechanism is provided in the
diary sector [6, 46]. Bailey and Brorsen [31] conclude on the role of asymmetric information in
determining APT and point out that asymmetries in price series data can result from a distorted
price reporting process. Kinnucan and Forker [6] and Cramon-Taubadel [47] consider APT in
the framework of the Gardner’s marketing margin model the price spread between farm and
retail levels is due to demand changes at retail-level as well as to changes in supply at farm level.
Assuming perfect competition and constant returns to scale, the model suggests that changes in
demand at retail level may have a large inluence on marketing margins with respect to changes
in supply at farm level. Kinnucan and Forker [6] argue that the marketing margins induced by
these shifts tend to provoke asymmetric price transmission conversely, Cramon-Taubadel [47]
concludes that positive or negative APT arises depending on the predominant shift.
In conclusion, although many studies found imperfect price transmission along the supply
chain, there is not a clear consensus but rather a variety of evidences depending on com-
modities, countries and data under analysis. It seems evident that more research relation-
ships among prices along the supply chain and the underlying behavior of agents are needed
Although a large number of studies have investigated the phenomenon of price transmission
in agricultural markets, it is still not possible to draw strong conclusions to support policy
decisions. Meyer and Cramon-Taubadel [ ] are skeptical on the actual results provided by
the literature unable to explain the economical relevance of evidence of imperfect price trans-
mission. They suggest that it would be premature to draw far-reaching conclusions for theory
and policy on the basis of work to date their critic pertains either the commonly adopted tests
to measure the transmission, still not fully reliable and precise in the statistical sense, and the
theories capable to explain asymmetric price transmission.
More recently, there is been a renewed turmoil in the literature that leads to an increasing
number of studies on vertical price transmission. First, Frey and Manera [48] reviewed the
literature on econometric models of asymmetric price transmission, concluding that asym-
metries are likely to occur in a wide range of markets. The authors deepen on the sets of mod-
els adopted to study asymmetries autoregressive distributed lags, partial adjustments, error
correction models, and vector autoregressive models. Clearly, more recent models are not
surveyed in the mentioned study. For instance, Brummer et al. [ ] adopt a Markov switch-
ing vector error correction model to investigate asymmetries in the wheat market. Hassouneh
et al. [ ] adopt a STAR model smoothing transition autoregressive model to conclude on
vertical price transmission in the poultry sector.
Several other papers have instigated price dynamics along the supply chain Acosta and Valdes
[ ] and Antonioli and Santeramo [ ] explore price dynamics in diary markets Santeramo
and Cramon-Taubadel [ ] focus on perishable food products Tifaoui and Cramon-Taubadel
246 Agricultural Value Chain

[ ] investigate the dynamics in buter market. The list may be long and never exhaustive as
more and more papers are published every year. A recent survey that is worth reading has
been recently published by Swinnen and Vandeplas [ ] they deepen on conceptual issues in
price transmission analyses of agricultural supply chains.

4. A focus on perishable markets

Marketing margins and vertical price transmission in fresh produce markets have been objects
of studies due to the relevant policy implications deriving from such analyses e.g., the assess-
ment of the eiciency of the produce marketing system and/or of the functioning of markets
both vertically and spatially separated , but nowadays, the literature still lacks of economic
explanations for the peculiar results found for perishable products [ ]. The present section
briely reviews the indings of recent studies.
Wohlgenant [14] estimated an econometric model to assess marketing margins dynamics
in eight commodities sectors detecting symmetric dynamics, compatible with a competitive
behavior, in all but fresh fruits sector, for which he found evidence of constant return to
scale but not for competitive behavior. These indings have important implications for sup-
ply chain. In particular, the evidence of constant return to scale for perishable products e.g.,
fruits suggests that competitive behavior is impeded by perishability. In other terms, the fear
of losing products due to waste for spoilage prevents the adoption of competitive pricing
strategies along the supply chain.

As regard price transmission,3 Ward [ ] seminal work on vertical price transmission in perish-
able goods markets determined the supply chain ring primarily responsible for establishing
price and also tested for pricing asymmetries. He found that the pricing point for fresh pro-
duce existed at the wholesale market level price transmission runs from wholesale markets to
retail and producer levels and that price decreases were more likely to be fully passed on to
the retail and producer level sectors than were price increases. As above mentioned, he argued
that retailers selling perishable goods might be reluctant to raise prices in line with an increase
in farm-level prices given the risk that they will be left with unsold spoiled product. Heien [41]
raises diferent arguments and concludes that changing prices is less problematic when deal-
ing with perishable products. Although the mentioned papers are dated, not many theoretical
advances have been made, nor the controversial theories abovementioned have been clariied.

Girapunthong et al. [ ] applied Ward’s pricing asymmetry model to fresh tomatoes data he
found the prices at producer level inluence price at wholesale and retail levels he also argues
that increases in producer prices have a major impact on wholesale prices than decreases
in producer prices. The controversy results might be explained by the structural changes
occurred in the market for fresh tomatoes, that is, by changes in the entire structure of the
market e.g., changes in amount of contracts, concentration of retailers and suppliers, etc. .

A detailed review of major indings is provided in Table 1.

 A Review of Supply Chain Prices Analyses with Emphasis on Perishable Markets 247
http://dx.doi.org/10.5772/intechopen.69451

Author Journal Year Product Frequency Resultsa

Aguiar and Santana Agribusiness Tomatoes Monthly Positive asymmetry

Onions Symmetry

Bakucs et al. Studies in Agricultural Potatoes Monthly Symmetry

Economics

Carrots Symmetry

Parsley Symmetry

Tomatoes Positive asymmetry

Peppers Symmetry

Bernard and Willet Journal of Agricultural and Broiler Monthly Negative asymmetry
Applied Economics

Bernard and Willet Applied Economics Leters Broiler Weekly Symmetry

Broiler Monthly Positive asymmetry

Brooker et al. Journal of Food Distribution Peppers Weekly Positive asymmetry

Research

Hassan and Simioni Économie Rurale Tomatoes Weekly Negative asymmetry

Chicory Negative asymmetry

Girapunthong et al. Journal of Food Distribution Tomatoes Monthly Asymmetryb

Research

Hassan and Simioni Économie Rurale Chicory Weekly Symmetry

Tomatoes Symmetry

Heien American Journal of Potatoes Monthly Positive asymmetry

Agricultural Economics

Apples Symmetry

Oranges Negative asymmetry

Letuce Symmetry

Tomatoes Symmetry

Kuiper and Lansink Agri Business Broiler Monthly Positive asymmetry

Apples Monthly Symmetry

Carrots Symmetry

Potatoes Symmetry

Pick et al. Agri Business Lemons Weekly Positive asymmetryc

Oranges Positive asymmetryc

Powers Agri Business Letuce Weekly Positive asymmetry

Scherz Willet et al. Agri Business Apples Monthly Positive asymmetry

248 Agricultural Value Chain

Author Journal Year Product Frequency Resultsa

Ward American Journal of Carrots Monthly Symmetry
Agricultural Economics

Celery Negative asymmetry

Cabbage Negative asymmetry

Cucumbers Symmetry

Peppers Negative asymmetry

Potatoes Negative asymmetry

Tomatoes Negative asymmetry

Worth Economic Research Service Carrots Monthly Positive asymmetry

Celery Symmetry

Letuce Symmetry

Onions Symmetry

Potatoes Symmetry

Tomatoes Positive asymmetry

a
Results on symmetry, positive and negative asymmetry depend on time frequency.
b
Positive asymmetry among wholesaler and retailer prices negative asymmetry among wholesaler and producer prices.
However, over time price changes appear to be symmetric.
c

Table 1. Major indings in applied analyses of vertical price transmission in perishable markets.

Sexton et al. [ ] completed a study to analyze grocery retailer behavior concluded that there
is considerable independence in retailers in seting prices for produce commodities and that
higher volumes led to larger margins. Similarly, Girapunthong et al. [ ] found that the retail
price is more likely to change after increases in producer prices than after decreases in pro-
ducer prices. According to Sexton et al. [ ], retailers have been more aggressive in using
their market power to inluence prices paid to producers for product e.g., higher volumes of
product in the market are used to bid down producer prices without equal declines in retail
prices, widening the farm-to-retail margin , and many shippers tried to counter the market
power exercised by large retailers consolidating their businesses with irms located in several
areas of production.
Recently, Santeramo and Cramon-Taubadel [ ] show that vertical price transmission is
symmetric for products not afected by large losses for spoilage and tends to be asymmet-
ric for very perishable products. Their results are in line with numerous studies [ , , 46]
and in contrast with the results presented by Kim and Ward [ ]. In addition, Santeramo [7]
concludes that, in markets of perishable products, price rises tend to be slowly transmited
and do not inluence distant markets on the contrary, shocks originated by price decreases
spread across markets. The results are in line with Ward [ ] who has demonstrated that the
high perishability, and the inability to delay sales through temporary storage implies that
decreases in wholesale prices have a larger efect on retail prices than increases.
 A Review of Supply Chain Prices Analyses with Emphasis on Perishable Markets 249
http://dx.doi.org/10.5772/intechopen.69451

5. Conclusions

The interest on prices dynamics in perishable markets has rapidly increased during last
decades due to the implications that studies on these topics may have on the understanding
of agricultural markets and of entrepreneurial strategies. Prices along the supply chain are
linked by long-run relationships and tend to difer by the marketing costs. Despite the sim-
plicity of this statement, market movements, entrepreneurial strategies, physical constraints
and biological dynamics make price dynamics along the supply chain quite complicate. An
aspect of particular interest is the perishability of the products in that it may inluence sellers’
strategies, consumers’ perceptions, and thus policymakers’ atention to a market.
We reviewed the literature on perishable food markets, and, in particular, we deepened on
research undertaken to understand how marketing margins evolve and how vertical price
transmission works, especially in perishable goods markets.
Based on our review, we try to conclude on lessons for the values chain. First, marketing margins
are an important indicator of how welfare efects are distributed along the value chain. Their
dynamics are also a good indicator of the functioning of the supply chain. By reviewing dated
and recent studies, we conclude that price spreads along the supply chain are largely inluenced
by the perishability of the products, characteristics that must be taken into account in analytical
analyses. In particular, there is a consensus that marketing margins of perishable products evolve
and react diferently to price shocks with respect to the marketing margins observed along the
supply chains on storable produce. In particular, the wastes due to spoilage and the diiculty
of managing inventories complicated reduce the incentive for strategical behavior. In addition,
along the supply chain of perishable products, price rises are slowly transmited and not trans-
mited to distant markets. To the extent that managers and policymakers intend to forecast price
dynamics along the supply chain, and react in a strategic way, it is clear that their horizon should
not be long the dynamics afecting supply chains of perishable products in distant markets are
not inluential and should not be considered with much care. Diferently, the degree of perishabil-
ity and the logistic plays a signiicant role in determining how prices evolve along the value chain.
The literature falls short on several practical aspects that deserve further atention. For instance,
it is still under-investigated if and how reducing spoilage inluence price dynamics along the
supply chain. Put diferently, is it the loss for spoilage that inluences price dynamics, or is it
the risk of wastes that induce economic agents to behave diferently? Moreover, how market
concentration at diferent stage interacts with the perishability has not been investigated. We
acknowledge that is not an easy task to the extent that no solid frameworks exist to study
market power, nor spoilage due to perishability, understanding how the two phenomena
interact is a very challenging task. Yet, the impossibility to disentangle the efects raises doubts
on any conclusions may be provided by the literature on price dynamics in perishable mar-
kets. Theoretical studies are in limited number [ ] a large efort in this direction is required.
Lastly, further aspects that merit atention are the potential impacts that price regulation has
on transversal price dynamics i.e., horizontal and vertical price dynamics . Few studies have
analyzed these issues [61–63], and further investigation is needed.
250 Agricultural Value Chain

A good note should close the present chapter Although large gaps impede strong conclu-
sions on how price evolves along the value chain of perishable products, the increasing avail-
ability of high frequency data weekly and daily should encourage researchers to deepen on
the unresolved issues. Research on price dynamics in perishable markets is likely to become
very relevant in the next future.

Author details

Fabio Gaetano Santeramo* and Leonardo Di Gioia

*Address all correspondence to fabiogaetano.santeramo@gmail.com
University of Foggia, Foggia, Italy

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 Chapter 14

Gendered Dimensions of Key Value Chains in

Southwestern Morocco

Shinan N. Kassam, Patricia Biermayr-Jenzano,

Shinan N. Kassam,
Boubaker Patricia
Dhehibi and AdenBiermayr-Jenzano,
Aw-Hassan
Boubaker Dhehibi and Aden Aw-Hassan
Additional information is available at the end of the chapter
Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.69827

Abstract

The Morocco Green Plan MGP has delivered signiicant economic beneits to small farm
households. A concentration on improving eiciency and proitability within value chains
for key local commodities has, through the creation of women s cooperatives, also led to
positive outcomes in female empowerment. Through qualitative and participatory research
methods, our analysis of gendered aspects of value chains for argan, rose, cactus, and saf-
fron in southwestern Morocco suggests that economic empowerment, fostered through
existing women s cooperatives, is fragile and subject to signiicant threats. In large part,
this is the result of a state-driven approach that has not efectively considered the inequi-
ties inherent within value chains for key local commodities and the meshing of existing
social and cultural norms with the tenets of a national drive toward modernization of
the agricultural sector. We suggest that the MGP is gender blind in this respect. Couching
value chain enhancement initiatives within an innovation systems framework, as opposed
to a state-centric process, is more likely to achieve well-being within rural communities,
together with sustainable social and economic returns within pro-poor value chains.

Keywords: Morocco Green Plan, agricultural innovation, gender, agricultural cooperatives,

argan, cactus, rose, safron

1. Introduction

Agriculture in Morocco is a signiicant source of income for % of its population and pro-
vides stability for many farm households that are vulnerable to the vagaries of weather and
desertiication [1]. In , the government launched Plan Maroc Vert (Morocco Green Plan
MGP , an ambitious national initiative that seeks to shift agricultural policies away from
a historical concentration on protection and toward more market-oriented principles. Pillar
I of the plan aims to enhance value-added, productivity and beter access to export markets

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258 Agricultural Value Chain

for high-value commodities through aggressive investments targeted at modernizing the

commercial agricultural sector. Pillar II prioritizes the need for public support in reaching out
to small rural farm households within marginalized areas, an area of signiicant importance
since the Arab Spring uprisings of . With socioeconomic underpinnings, this second pil-
lar seeks to foster both quality as well as stability in the supply of local commodities produced
by resource poor farm households, through the creation of production cooperatives, within a
federated model of cooperative organization.

Signiicant investments have been made for improving livelihoods of the rural poor. These
include i the formation of producer cooperatives women only, men only, mixed ii state
subsidies in the provision of equipment for processing and packaging, funding for infrastruc-
ture development largely in the form of warehouses for the sorting and staging of products
for export iii sponsorship of exhibitions and fairs to promote local products internationally
iv gratis provision of primary inputs to cooperative members and v identiication of geo-
graphical indication markers to protect proprietary rights on cultural heritage, with atached
economic beneits. Yet, despite all the fanfare within national and international media outlets,
a claim that rural farm households do not receive fair value from the sale of highly valued
products within both international and local markets continue to persist [ , 3]. Participatory
workshops facilitated by the authors initially revealed a widely held notion within southern
Morocco that the blame for inequitable returns is to be laid on the marketing agents, who
capitalize on female illiteracy, ineicient production practices, and a lack of institutionalized
credit within rural areas. Our indings paint a diferent picture, and one that diverges from
received conventional wisdom. We argue that a lack of coordination in public services, coupled
with prevailing cultural norms, policy, and environmental constraints block the ability for pri-
vate and public initiatives, that are aimed at enhancing eiciencies within key pro-poor value
chains, to improve sustainable long term rural livelihoods.

This chapter aims to provide a beter understanding of production and marketing systems
for four local products within southwestern Morocco argan, cactus, safron, rose , and with
speciic atention paid to challenges faced in gender equity within each value chain. Speciic
to the region, and to certain villages, all four possess characteristics of high demand and value
in both domestic and international markets. Produced on the periphery of traditional export
crops on irrigated lands tomatoes, citrus fruits, and berries , these four products are of signif-
icant economic importance to rural communities and continue to gain international recogni-
tion. Of signiicant cultural heritage to the Amazigh tribes of Morocco, and long considered to
be only of importance to Berbers and their goat herds, argan gained international notoriety in
the late s when scientiic curiosity conirmed several positive aspects in relation to its use
for both health and beauty [ ]. The production of safron within the villages of Taliouine and
Taznakht in southern Morocco, places Morocco fourth in global production of this delicate
commodity that requires skilled female hands to ensure quality [5]. Roses in Kalaa M Gouna
village yield highly valued rose oil, and provides Morocco with an element of prestige as one
of the largest producers of rose oil historically third after Bulgaria and Turkey [6]. Lastly,
prickly pear cactus in the southern province of Sidi Ifni commands a national following, with
premium prices in wholesale and retail markets within Morocco, and a potentially lucrative
international market for both fresh fruit and cosmetic oil.
 Gendered Dimensions of Key Value Chains in Southwestern Morocco 259
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While much has been writen on botanical and other scientiic and technical aspects of these
local products [7– ], litle atention has been given at least in the English literature to an
analysis of policy, market and social challenges faced by small producers, and opportunities for
addressing these challenges. What does exist [13–15] is restricted to argan and with signiicant
contribution to a contemporary understanding of historical challenges that continue to persist
today. Perhaps more surprisingly it is a lack of research and atention to gendered issues for
these commodities, where female hands play a signiicant role in securing economic returns.

Utilizing qualitative and participatory action research methodologies, this study sheds light on
the nature of gender-based participation within the four local commodities identiied, and partic-
ularly with respect to trade-ofs in time and income allocation, as well as issues related to house-
hold power dynamics. These trade-ofs arise in several diferent areas, such as on those related
to health, education, opportunities for farm and of-farm income sources, and sometimes more
conspicuously in terms of inequitable gender-based access to resources and economic opportu-
nities for gainful employment. An exploration into issues of empowerment and meaning further
highlights signiicant risk for sustainability in economic empowerment and well-being. Readers
interested in more detailed analyses and description of methods, as well as a list of interviewed
respondents, are directed to the working paper from which this chapter has been generated
[16]. Our key argument is that the Morocco Green Plan is essentially gender blind, and greater
atention will be required in terms of addressing issues related to gender equality in access to
economic opportunity, if this state-led process is to achieve its desired aims and objectives.

2. Morocco Green Plan

Plan Maroc Vert Morocco Green Plan is built on two pillars with four stated objectives

(i) Reduced poverty within rural areas

(ii) Improved measures for achieving national food security

(iii) Natural resource sustainability

(iv) Improved and equitable access to national and international markets.

Pillar I: One aim, within the early days of the initiation of the plan was to generate billion
Euros of investment, % of which was expected to be generated from private investment
across projects identiied for implementation. A considerable number of these projects
were targeted at value-added initiatives within irrigated production areas with high agricul-
tural production potential and underpinned by a desire to modernize the agricultural sector.

Pillar II: In addition to the activities under pillar I, an additional projects were targeted for
remote areas, particularly within marginalized rural areas where poverty continues to persist.
These initiatives seek to uncover avenues for intensiication, diversiication, and specializa-
tion in agricultural production and processing activities through directed social and economic
organization production cooperatives and a federated model of cooperative organization .
260 Agricultural Value Chain

Taken together, these two pillars are underpinned by a stated desire to address socioeconomic
disparities between modern and traditional agricultural sub-sectors, through improvements
in productivity primary and processed , and with enhanced access to commercial markets.

. Case studies: argan, rose, cactus, and safron value chains

. . Argan: a story of women versus machine

Endemic to Morocco s public forests in southwestern Morocco, argan maintains historical,

cultural, and economic importance. For centuries, the argan tree has been associated with
the Amazigh Berber tribes who have relied on its oil, and associated joint products, for culi-
nary, cosmetic, and health purposes feed and fodder for small ruminants and as a source of
heating material [17]. But the argan tree is now under threat, with implications for Amazigh
tradition and customs. Oral discussions with oicials and industry representatives indicate
without the support of publicly available data that natural argan forests have shrunk from
an estimated . million hectares at the turn of the century to an estimated , hectares
today. While traditional systems of usufruct rights for harvesting argan fruit continue to exist,
access to these forests is banned by the Ministry of Forestry for months of the year, so as
to mitigate the impact of grazing over the fruit-bearing season. Yet, despite oversight by the
Ministry, grazing and illicit felling of argan trees for charcoal production are reported to be on
the rise by local communities. Incidence of social tension between local residents and camel
herders from the disputed Western Sahara, who graze in the argan forests, was mentioned
during a number of discussions with community elders and with indication of a rising trend
in violence.

One fundamental issue related to access rights and a cause for tension with nomadic camel
and goat herders is the nature of ownership and usage rights for argan trees. Under existing
legislation, historical rights to harvest argan trees have been maintained and passed down by
inheritance. Within villages, communities and tribes, speciic argan trees are held by house-
holds on the basis of cultural norms, and common knowledge exists on rights to the fruit
from these trees. Yet, the trees themselves belong to the state as national heritage, even if they
exist on private property the incentive to plant argan trees on private property, therefore, is
mitigated, as is any desire to maintain trees in public forests through pruning, management or
general care in situ. Taken together, extended drought, excessive grazing, illegal felling, and
issues of ownership have been blamed for the reduction in argan forest areas yet, many also
argue that an increasing price for argan oil has also led to an efective mopping up of argan
fruit and seed from the forest loor, thereby leading to reduced natural regeneration.

Annual production of argan fruit and oil is neither accurately collected nor oicially reported,
but estimates in the late s were on the order of tonnes of argan oil produced annu-
ally [ ]. Argan oil is sold locally as a traditional source of edible oil and internationally as
high-valued inputs into cosmetics, skin care products, and shampoos. The later has taken on
increasing importance since the s, at which time scientiic curiosity and evidence-based
research revealed several positive cosmetic and health virtues of argan [ ]. Exact igures on
 Gendered Dimensions of Key Value Chains in Southwestern Morocco 261
http://dx.doi.org/10.5772/intechopen.69827

argan oil exports have been diicult to obtain and in part due to the lack of a speciic tarif
code, despite indication of growing exports and demand internationally.

Media and marketing campaigns continue to profess the beneits of high-valued export mar-
kets for argan, and largely in terms of enhanced livelihoods for rural Amazigh women. A
growing tourist economy in the region has also sprung up, and daily tours to women coop-
eratives producing argan oil are a favorite outing for visitors interested in viewing women
huddled together in a room cracking argan nuts and producing argan oil. Professing health
and cosmetic virtues, genuine cooperatives, as well as those masquerading to be a coopera-
tive, vie for the business of tourists, whereas marketing agents from overseas engage with
federated cooperatives and unions of cooperatives for a stable supply of argan oil for export.
More inclined tourists part with their money at a multitude of spas ofering relaxing massage
treatments with argan oil, some with the conviction that they are improving livelihoods for
poor Berber women and the natural argan forest.

Not everyone is, however, convinced of these win-win claims, both domestically and interna-
tionally. Lybbert [ ], for instance, argues that the argan boom has led to disproportionate
beneits for rural households and no appreciable impact on forest health. Well-of households
invest in increased goat herds, as well as more aggressive harvesting techniques harvesting
with sticks to knock down fruit . It is argued that these have had signiicant impacts on degra-
dation, productivity of argan trees, and therefore on incomes from argan oil production [ ].
For most rural households in areas adjacent to the forest, key sources of household income
are remitances, as well as male-earned income through daily labor employment and sale
of argan oil. With rising prices for argan oil, the contribution of argan to household income
continues to rise and, at the time of study, was estimated to be on the order of %. Field
visits and discussions with farmers indicate that prices for argan oil in local markets have
risen from approximately dirhams per liter in to over dirhams in and as
high as dirhams in . Discussions with several cooperative managers indicate that
bulk exports of argan oil were within the range of dirhams per liter. Yet, individual and
cooperative women producers claim that they receive litle of this signiicant margin between
the local market price and the export price. One question, therefore, is whether there is any
beneit to cooperative production and marketing of argan oil, in terms of exerting greater
negotiation power within the value chain.

Figure 1 depicts the argan value chain for private and cooperative producers. One key dis-
tinguishing feature of the argan production system is that it has historically been within the
domain of women and continues to remain so today. Except for helping to transport the har-
vest from forest to home, and in marketing argan oil in local markets, men have not been
involved in the processing of argan for oil and its joint products. From harvesting semi-dried
fruit to peeling, cracking the inner nut to obtain the kernel and hand grinding, one woman
will expend close to days of labor in order to obtain L of oil and associated joint products
lesh and paste for animal fodder, shells for sale as heating fuel to bakeries and commu-
nal baths . On average, and valued at local market prices, this was equivalent to dirhams
US$ per day, which was on par with the oicial minimum agricultural wage rate in rural
areas of dirhams per day in .
262 Agricultural Value Chain

Figure 1. Argan value chain.

While remuneration for labor was at the rate of the oicial minimum wage, stability in total
income generation from argan oil production is a more important issue for the household, not
women alone, and this depends on the number of argan trees for which the household pos-
sesses rights to harvest. Inherited over generations by male members of the household, usage
rights are only acquired by women in the case of no male siblings or on the demise of a spouse.
Within the household, therefore, historical norms exist over ownership of income from argan
oil sales in local markets, with men taking charge of selling in local markets, retaining the
income from sale, and disbursing to household members based on mutual understanding of
roles and responsibilities. How many argan trees the household has rights over, and the pro-
ductivity of those trees in the public forest will, therefore, determine total household income
from argan. The lower the number of these rights, the greater the burden is on male members
of the household to generate income for household maintenance. A relevant line of enquiry
therefore is whether cooperative production and marketing of argan can provide higher
incomes, relative to home-based production, and whether this income stream is of a duration
which is longer than seasonal home-based production.

At the Taroudent woman s cooperative in Essaouria province, members were paid dirhams
for kg of argan fruit brought to the cooperative and placed into the collective pool for peeling,
 Gendered Dimensions of Key Value Chains in Southwestern Morocco 263
http://dx.doi.org/10.5772/intechopen.69827

cleaning, and cracking of the outer nut. Piece rate wages were set at dirhams per kg of kernel
extracted from the nuts. Based on a norm that each kg of fruit yields kg of kernel, and that one
woman in day is able to extract kg of kernels, the average woman member earns dirhams
per day of work within the cooperative. This was not signiicantly diferent from home-based
production when considering transportation costs.
Home-based production is constrained by the number of trees with harvesting rights and
by available female labor. For those households with excess female labor in their household,
purchasing argan fruit in the local market, over and above the endowment of fruit harvested
at the household level, requires a source of cash. Membership in a cooperative does not nec-
essarily help to relieve the constraint of working capital but does help in reducing transac-
tion costs in securing available supply and through pooling of argan fruit between members.
Access to a larger pool of argan fruit can come about through the following

a. The sale of argan fruit to the cooperative either fully or more than what is processed at
home by women cooperative members.

b. Purchase of argan fruit from non-members, when hours of manual collective labor de-
voted by women members to the cooperative is more than collective argan fruit brought
in by individual members.

Given the nature of poverty and cash constraints, women insist on payment for fruit supplied
at time of delivery and wages for manual labor after a reasonable period. Both require work-
ing capital for the cooperative, and given the lack of access to institutionalized credit within
rural communities, it is a necessity for the cooperative to either generate proits or to charge
initial membership fees in order to acquire this capital. With relatively similar returns between
household production of argan oil and returns to labor at the cooperative, why would women
choose to pay fees to join or maintain the cooperative? One answer is the beneit of access to
a variety of social services provided by the cooperative child minding, adult literacy lessons,
small loans, and ability to socialize . Yet, not all cooperatives provide this service. A more
plausible explanation lies in the observation that the production cooperative provides an abil-
ity to secure steady wage income over an extended period, with generation of total wage
income which far exceeds that from the production of argan oil at home. An added incentive
is the ability to retain the value of their labor, away from discretionary use by their husbands
or male elders, and for utilization within the household on maters of priority to their needs
and the needs of their family. Whether this is a form of empowerment remains moot in so far
as it involves trade-ofs within the household and between household members.

In taking a more conservative view, mechanical technology for cracking the argan nut has
not been developed as of yet. The only available method for obtaining the inner kernel, used
for extracting argan oil, is still based on a traditional method of hand and sharpened stone.
Women have proprietary rights to this critical production function, based on historical cul-
tural norms related to division of labor, and more speciically to an activity without which
the entire value chain for argan oil breaks down. Yet, this advantage is also a potential source
of weakness. Cash strapped and resource poor, households relying on argan as a signiicant
264 Agricultural Value Chain

source of livelihood need to provide services in order to receive cash, and require immedi-
ate cash for services provided. Combined, this results in a situation where women are com-
pelled to work long hours at cooperatives, and at institutions masquerading as cooperatives,
for piece rate wages that are on par with the mandated minimum wage. Development of a
mechanical cracker will surely put an end to stability in wages from labor currently expended
by women in the cracking of nuts, and one of the underlying reasons and beneits for why
women currently choose to join a cooperative structure.

With this knowledge, one needs to question a state-sponsored drive for facilitating greater
numbers of women s cooperatives under the Morocco Green Plan. It would seem timely for
eforts to be concentrated on inding avenues for how rural households can retain control over
the argan nut, and to negotiate fair value for either the raw kernel or the oil that accrues from
the kernel. Given a need for immediate cash, collective storage units and single selling desks
at the community, village, or district level are unlikely to meet with much success unless i
farmers are paid on delivery and ii there is an underlying system for ensuring no leakage, in
order to maintain bargaining power with processors and marketing intermediaries. Given the
nature of the product, limited options for alternative income sources at the household level,
land tenure and property rights issues, the government may need to consider ixing a reason-
able minimum price for argan kernel at a rate that i fairly remunerates rural households
but ii still provides an incentive for processors cooperative or private to earn a margin on
processing and marketing of argan oil.

This potential solution comes at a price. Fixing a minimum price on argan kernel at rates that
provide fair remuneration may lead to more aggressive harvesting techniques and potentially
negative consequences for forest conservation [ ]. Concomitant with any potential consider-
ation of ixing a minimum price on argan nuts, therefore, is the need to consider community-
based management of the argan forest. Minimum pricing and forest management must go
hand in hand, and without this combined set, options for households to retain income from
argan, and for women to continue a cultural tradition of processing argan, are limited in
the face of machinery which will ultimately replace hand and stone. The danger here is that
without some form of security on the proprietary nature of processing, whether manual or
mechanized, the potential for shipping nuts for processing outside of Morocco becomes very
real in the face of future innovation.
The story of argan would seem to be one of a race against time and between woman and the
machine.

. . Rose: a scent of hope

Rose production in Morocco has historical linkages to French occupation and largely conined
to the village of Kalaa M Gouna in Ouarzazate province. Areas under production and quantities
produced have been diicult to assess, but estimates are on the order of linear km m wide
and production between and tons annually [ ]. Variation in production is largely due
to risks of both frost and sustained drought, but also the nature of the production system itself.
Grown in hedge rows and as land boundaries, roses are complementary to principle agricultural
production produced on the farm, primarily cereals and summer vegetables, and from which
they receive cross fertilization and much of their water requirements.
 Gendered Dimensions of Key Value Chains in Southwestern Morocco 265
http://dx.doi.org/10.5772/intechopen.69827

Pruning, maintenance, and picking have traditionally been undertaken by females in the
household, but within the ambit of their main duties in supporting agricultural production
of other crops, together with male household members. Women invited to a workshop in the
village to discuss challenges and constraints in the production of roses indicated that approxi-
mately % of their time is spent on roses, mostly during the harvest months of April and
May, and with a contribution to household income not exceeding %.

Farm households producing roses have several options for marketing see Figure 2): (i) sale
of fresh petals to intermediaries or directly to industrial units, ii sale of dried petals to inter-
mediaries for onward sale into national wholesale markets, or iii to the cooperative within
which they retain membership. In the case of the later, producer cooperatives now exist,
of which are male only and women only. All cooperatives produce the same products
rose water and dried lower petals with gendered division in roles conditioned by history,
culture, and a reaction to current policy.

Dried rose petals and rose water have long been associated with this village, but commercial-
ization of rose petals was only realized in the s when, under French occupation, perfum-
eries from France encouraged greater cultivation and technical assistance in the cultivation of
roses for utilization in the production of oil. Of the two large private industrial units within
proximity to the village center, one remains from the French colonial era whereas the other to
an investment arm of the ruling Monarch. As detailed by several farmers, and privately by one
public extension oicer, collusion between the two industrial units is argued to be one of the
reasons for low prices paid to growers. Given technical parameters for optimal timing between

Figure 2. Rose value chain.

266 Agricultural Value Chain

harvesting and processing of oil approximately h , farmers are limited in their ability to ship
fresh petals to other factories outside of their village or internationally. Perishability, therefore,
plays a key role in the ability to collude on prices, as picking occurs at a.m. and delivery to
the factory by a.m. in order to be accepted for purchase. Advances in laboratory testing are
equally important, therefore, in the ability for irms to collude as approximate time of picking
can be veriied on delivery.

With collusion claimed to exist since the s, farmers interviewed detailed how an insurrec-
tion in led to the uprooting of a signiicant number of rose bushes as a symbol deiance
against state control. Sustained bouts of drought and reduction in supply forced irms to raise
prices for fresh petals over subsequent years, but the nature of political interference in the set-
ting of prices and control over the industry has not been minimized. Unlike workshops held
in other villages for safron, argan, and cactus, the Ministry of Interior appointed a senior
security oicer to atend our discussions with farmers, most likely to observe the nature of
discussions. Convinced that the workshop was not a threat to the state, or a cause for future
civil disobedience, the oicer left on the basis of a request and receipt of a leter from the
national research institute INRA , co-hosts of the workshop, and which stated objectives of
the workshop. Indeed, many farmers invited to the workshop did not atend, and on follow
up, indicated that they were fearful of repercussions from discussions related to pricing and
seting of prices for fresh rose petals.

The political nature of rose production systems, and currently limited contribution to house-
hold income, raises interesting questions of why rose has been included within the Morocco
Green Plan. With the highest estimated production of fresh roses at tons annually, and
a price of dirhams per kg for fresh rose petals, small farm households within the village
stand on a potential income gain of million dirhams approximately US$ . million annu-
ally. This estimated income gain is based on potential market supply, given that only %
of production is currently sold in fresh form to industrial plants engaged in the production
of oil, % to cooperatives engaged in the processing of rose water, and the remainder %
sold in dry form. With a conversion ratio of of fresh to dried, and a high price of dir-
hams per kg for dried roses, estimated potential income for farm households from dried rose
marketing was . million dirhams approximately US$ , and . million dirhams
approximately US$ . million from fresh rose sales to industrial units and cooperatives.

In light of these igures, and given Morocco s ranking as third largest producer of rose oil [6],
a concentration on roses under the Morocco Green Plan is valid. Yet, the formation of coopera-
tives under Pillar II of the plan and poverty alleviation through production cooperatives is
somewhat diicult to understand for the rose sector. On the basis of focus group discussions,
there is a generally held notion that i it is easier to obtain grants and subsidies for women
cooperatives, ii for the purpose of marketing dried roses and rose water, the characteristic of
the product, and the target consumer, lends itself to beter sales if marketed by women, and
iii applications for the start-up of cooperatives by the youth males in particular are some-
times viewed as threatening to local security services and face long delays. Women appear
to be less threatening as an organized group of producers relative to males and speciically
young males.
 Gendered Dimensions of Key Value Chains in Southwestern Morocco 267
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Returning to the calculation on potential income from the sale of fresh and dried roses, a focus
on expanding marketing and sale of dried roses is clearly in the interest of farmers given i
greater choice in markets, ii an ability to diminish the constraint of perishability and more
importantly, iii removing surplus of fresh petals from the local market in order to inluence
a higher price paid by industrial processors. While rose water production from fresh petals,
at the cooperative level, ofers an interesting option for diversiication, relatively small scales
of production, high equipment costs, and competition from synthetic imports rose essence
limits the ability for take-of and impact for rural livelihoods. Equally important is a move
toward organic certiication, particularly for products that are within the wider rubric of cos-
metic products. But are farmers within Kalaa M Gouna able to respond to this niche? Planted
as hedges around small-scale production areas of cereals and vegetables, cross contamination
of fertilizers and pesticides is impossible to avoid within the current production paradigm
practiced, and therefore, the ability to ill this niche is limited.
Is there a possibility to expand areas of production under rose, and with new paradigms of
production that have sound environmental underpinnings, but still commercial in nature?
Farmers responded positively to this possibility, but noted a fundamental constraint in access
to productive land that has been in reserve since French colonization and allocated to senior
military oicials under favorable lease. Inability to access previous tribal lands that were
nationalized at independence is also a source of concern and limits potential for rural house-
holds to engage in more commercialized rose farming systems. Farmers also mentioned that
in an environment where there is excess supply of fresh rose petals in the local market, with
no options for exporting fresh petals outside of the village, commercialized production by
farmers will only lead to further downward pressure on fresh petal prices. While relevant
and correct, the fact that a recent private entrant into the industrialized sector has initiated
production of rose oil, with purchase of fresh rose petals from the village, suggests that there
is scope for industrial expansion of rose oil, and therefore a larger market for the sale of fresh
rose petals.

That the new entrant has not engaged in collusion on prices with existing industrial units is a
positive development, but there is one looming risk. Farmers and extension agents state that
the new industrial unit has also initiated production of roses on a commercial scale within the
village and to supply its own plant. Scale of operation will determine whether this commer-
cial production of roses displaces any current supply from small households to the other two
industrial units, and what impact this will have upon producer prices for fresh rose petals. On
a positive note, larger scale of production may result in wage opportunities for picking, rates
for which will depend upon availability of specialized female labor in season and at critical
periods.

So, we return to the question of whether small-scale farmers should be concentrating on

expanding cooperative production of rose water or concentrating on dried roses. Market
studies are clearly needed to answer this question, but cursory analysis presented herein sug-
gests that the government should revisit the premise for promoting producer cooperatives,
particularly for women, without a clear understanding of available markets for the product
under transformation, the speciic nature of the product itself, and constraints of expanding
268 Agricultural Value Chain

production of primary inputs for supply to the cooperative. Moreover, if the government is
indeed interfering in the seting of prices, through collusion between Monarch investment
units and private industrial units, the premise of Pillar II of the Morocco Green Plan is seri-
ously undermined for the rose sector.

Small rose farmers in the rural village of Kalaa M Gouna continue to rely on remitance
incomes, limited production of cereals, and on a hope that roses will one day pave the path
out of poverty.

3.3. Cactus: waiting for a ride

Cactus production in southwestern Morocco is predominantly undertaken within the prov-

ince of Sidi Ifni on i small-scale private land, ii marginal public land, and iii on hills
of marginal quality land. With an average of mm of precipitation, cropping options are
limited, and proximity to the ocean provides an ambient environment for cactus to prosper.
Yet, untimely precipitation or poor distribution of precipitation is a signiicant risk to produc-
ers. In , farmers and industry representative interviews suggest that poor and uneven
rainfall was the cause of loss for % of harvestable yields, well above the typically high loss
of % in an average year. Discussions with farmers and public extension agents indicate
that the severity of loss is related to an inability for producers to ship to market in a timely
manner, and largely due to a lack of transportation and marketing intermediaries at critical
points of the season. While markets in Agadir-Inezgane and farther north place a premium
on cactus from Sidi Ifni, market intermediaries choose their routes based upon proitability
and time of transport. Tomatoes, citrus, and berries produced in areas of proximity to Agadir
are naturally more lucrative and, therefore, number of vehicles and middlemen travelling to
the southern region of Sidi Ifni during vegetable and citrus harvesting seasons are argued to
be in limited supply.
With claims of limited transportation options and cactus roting in the ield at such high rates,
one is perplexed by recent initiatives under the Morocco Green Plan to subsidize the planting
of cactus shrubs at a cost of approximately US$ dirhams per hectare. One expla-
nation ofered by oicers at the Ministry of Agriculture is that the Morocco Green Plan has
set a target of reducing the area under rainfed cereal plantation, and given limited options
for replacement in an area with limited precipitation, cactus is a natural choice. In addition,
the plan also sets targets for limiting desertiication and replanting of public forest lands,
an equally compelling reason for pushing cactus plantation into areas of marginal land
productivity.
Discussions with farmers indicate that an average household is likely to earn , dirhams
per year from the sale of cactus, which is lower than the minimum agricultural wage rate.
Given that there are limited alternative cropping options for most small rural households in
the area, men have traditionally engaged in apiculture, whereas women devote their labor to
harvesting and basic maintenance of cactus plantations. Considered a lazy man s crop, rain-
fed production requires litle maintenance and no material inputs in the production of cactus
fruit. All sales of fresh fruit from the farm gate are therefore combined returns to female labor
including management and returns to male contribution in their traditional role of marketing.
 Gendered Dimensions of Key Value Chains in Southwestern Morocco 269
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Given issues of perishability and need to immediately ship to market at harvest, fresh fruit coop-
eratives, outside of larger urban markets, are unlikely to succeed, unless they add further value
to the product. In atempting to mitigate this constraint, the current cooperative structures in
cactus are comprised of i male cooperatives, which are merely organizational structures for
maintaining collection centers/staging areas which organize collective member fruit for shipment
to federated cooperative structures GIE and onwards for export, ii women cooperatives that
extract cactus oil and prepare a variety of dried and processed cactus products.

Figure 3 illustrates the value chain for cactus fruit in the Sidi Ifni province. Exports of fresh
fruit through the GIE have been limited and undertaken from a recently built factory pro-
vided under the Green Plan. At a cost of million dirhams approximately US$ . million a
visit to the factory reveals lavish oice spaces, packaging equipment, cooling facilities and all
necessary warehouse equipment, but no revolving working capital for salaries, purchase of
packaging material, and most importantly payment for fresh fruit supplied by farmers within
the region. A one-time grant for testing the operation, with a shipment to Eastern Canada
earlier this year resulted in complete loss on arrival and due to a lack of appropriate cooling
and packing measures on departure from Morocco.
This initial export experience has highlighted fundamental issues of limited coordination
between various public and private actors, and a potential weakness of the Green Plan. A lot
of efort has seemingly been placed on infrastructure development and outputs rather than
outcomes and investments in approaches that are sustainable, replicable and with measurable
impact on small farming households the intended beneiciaries of pillar II of the Green Plan.
In the case of limited numbers of women cactus cooperatives, subsidized equipment for extract-
ing cactus oil, renovation of buildings and small equipment for manual processing of cactus
pickled cactus ears, dried fruit, etc. are being undertaken by the Morocco Green Plan as well
as other international partners such as the United Nations Development Programme UNDP .

Rainfed

P E S

Processed Products
Fresh fruit

Processed Products

Waste
& rejects

Private Land

Figure 3. Cactus value chain.

270 Agricultural Value Chain

On the positive side, a stable market for cactus oil has the potential to mop up signiicant
amounts of cactus fruit that lays roting in the ields, only a portion of which is fed to the lim-
ited number of livestock within the immediate area. With kg of fresh fruit required to obtain
kg of seed, and between and kg of seed to produce L of oil, each liter of cactus oil has
the potential to remove between and kg of fresh fruit from the ield. At current retail
prices of close to US$ per liter, a stable market for cactus oil has the potential for a win-win
solution if there is limited variation in the range of seeds needed to produce oil. At the high
end of kg, the product is unproitable. The fundamental problem with variation in seed
quality for oil production lies in rainfed production of cactus. Efective productivity and prod-
uct for processing requires commercial production of cactus, with provision of drip irrigation
and application of judicious amounts of management and technical inputs. Commercial tri-
als in this regard have been initiated by private entrepreneurs in Sidi Ifni and with plantings
to bear fruit this year. Whether or not this production is tied to a speciic industrial unit for
production of processed cactus products is unclear. What the investment does suggest is that
there are perceptions of proit to be made in cactus, but whether or not this results in trickle
down beneits to small household producers is less clear. While market development for pro-
cessed cactus products, particularly oil, will have spill over beneits to the local community
in terms of wage labor, it is unlikely to have an impact upon the volume of sales for fresh and
ripened cactus at the farm gate for small producers. This is largely due to variation in quality
of seed for processing and due to climatic variation and the need for standardized commercial
production, which has now been undertaken.
For small producers of fresh cactus fruit, the only signiicant opportunity lies in sales of fresh
fruit to national and international markets. The argument that middlemen do not purchase
cactus in high volumes during the tomato and citrus seasons is somewhat weak. Based on
discussions with wholesalers and street cart vendors in the urban center of Agadir, a more
likely explanation is an economic one, and that related to the protection of marketing margins
through not looding local wholesale markets. A dedicated study is required to study this con-
jecture, but one underlying question is why cactus farmers do not collectively hire trucks and
ship their cactus to market, in the absence of the middle-men. Access to credit is brought up
frequently in this regard, but is also a weak argument given that sales of cactus in wholesale
markets are paid in cash on delivery. With perseverance, a more plausible explanation of cactus
under the domain of women in the household, and men tending to their bees in the hills and
valleys was uncovered. Without signiicant male support, women are reluctant to engage in the
marketing of cactus given cultural norms and particularly so if this requires their accompany-
ing the shipment to Agadir in order to secure the sale.
This social and perhaps cultural constraint brings back into play the export-oriented factory
built under the aegis of the Green Plan, and an opportunity for this facility to play a critical
role in providing signiicant income to the region. Why there has been limited movement in
supplying necessary skill and working capital to leverage investments already undertaken is
a source of confusion to many within the cactus sector. What is clear is that there is a lack of
coordination within the implementation of the Morocco Green Plan, and speciically between
a number of governmental agencies with mandates to provide sometimes competing sup-
port services.
 Gendered Dimensions of Key Value Chains in Southwestern Morocco 271
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Cactus production in Sidi Ifni is predominantly under the domain of women who harvest,
sort and prepare cactus for sale at the farm gate. Unable to take the ride to market, in order to
sell their fruit during periods of excess supply, women have been relegated into the passenger
seat and are in transit awaiting a ride to ship their cactus products to market.

. . Safron: all we need is cash

With a relatively small population of , , the village of Taliouine sits on the road between
the commercial center of Agadir and the rose-producing village of Kalaa M Gouna. With over
families involved in the production of this crop, the importance of safron to stability
in livelihoods, and to the economy of the village is signiicant. Male and female roles in the
production of this highly prized commodity internationally are delineated along lines of com-
parative advantage. The application of brute strength is provided by men in the preparation
of ields for planting and water, while women engage in early morning picking of lowers,
and a delicate procedure of plucking stamens from the lower.
Labor shortages, particularly for skilled female labor, are implicit in norms related to payment
for picking, with one-ifth of the output payable in a year when labor is abundant, and up to
one-half when skilled female labor is in short supply. Focus group discussions with women
suggest that a historical culture of self-help Tiwizi , where women collectively harvested and
assisted each other in the plucking of stamens has eroded over time. This is largely due to
emigration of male household members, leaving behind a greater burden of household duties
for women as well as general societal shift toward individuality. Interestingly, male coopera-
tive members suggested that women cooperatives for safron were an avenue through which
to revive a historical custom of Tiwizi, a claim dismissed by female cooperative members in
a separate discussion. Women suggested that a primary reason for women cooperatives to
form was to obtain free safron bulbs, provided by the public extension services, and as a pro-
gramme aimed at fostering expansion of safron production under the Morocco Green Plan.
While interesting, only of the existing cooperatives in the village are women only, and of
the remaining , only are mixed cooperatives. In the case of the later, women belonging
to this cooperative were widows or women whose husbands were away from the village for
income-generating opportunities. A heavy concentration of male only cooperatives is clear
indication of the strong role that males play in the marketing of safron and in decisions
related to the planting of safron.

With up to % of land planted under safron for an average household ranging from ½ ha
to ha , the decision of land allocation is based on labor and water constraints. Given small
parcels of land and limited family labor, households interviewed indicated that safron will
always remain a family-based activity for the household and not a commercial activity. In
large part, this also relects the role of safron in smoothing out income during the months
of November to January, when there is limited income from agricultural activities. A claim
that safron has never been immensely proitable to the farm household is plausible, given
an understanding of income streams over the year and current challenges of credit within
the sector. Traditionally, and even contemporarily, safron continues to be used as a form of
currency within the village, in barter trade, as well as in seting up accounts with shopkeepers
272 Agricultural Value Chain

for payment by safron at the time of harvest. This continued reliance on safron as currency
in hard times raises a larger issue of market power and lack of ability for farmers to negotiate
beter prices.

The role of cooperative formation and social organization under the Morocco Green Plan was
aimed at improving farm margins and access to markets for local products, with safron iden-
tiied as one key product. Yet, exports through cooperatives remain limited, with most sales
of safron still destined for local and national markets. In limited cases, and with the support
of internationally sponsored NGOs, one male cooperative has been successful in the supply of
safron to Italy on renewable yearly contracts. Others have informal contacts with overseas
buyers who place orders sporadically, with prepayment through the post oice and shipment
through courier. In general, cooperatives rely on tourist lows, sales at exhibitions and fairs,
and to middlemen who onward sell into national markets.

Figure 4 illustrates the value chain for safron in Taliouine village. One interesting point to
note is the sale of safron to the GIE groupement d intérêt économique . As a second level
cooperative promoted by the Morocco Green Plan, its objective is to act as a single selling desk
for cooperatives, in order to negotiate beter prices and to promote exports. While interesting
in theory, a signiicant challenge in access to working capital renders the GIE as an organiza-
tion of litle value in practice.

Due to cash constraints, the GIE is unable to pay safron farmers on delivery. As in the case
of argan, poverty and a need for cash mitigates the ability for poor households to sell safron

BOUTIQUES
SUPERMARKETS

PRIVATE INTERNATIONAL
HOUSEHOLD FAIRS
PLOTS
Producer TOURISTS
Cooperative

GIE
DARSAFFRAN EXPORT

Producer
Cooperative
NATIONAL
MARKETS

MIDDLEMEN

LOCAL
MARKETS

Figure 4. Safron value chain.

 Gendered Dimensions of Key Value Chains in Southwestern Morocco 273
http://dx.doi.org/10.5772/intechopen.69827

to the GIE on consignment. With kg of storage capacity and an average market price of
dirhams per gram, the GIE would require million dirhams of revolving credit approxi-
mately $US , . Management of the GIE suggest that while high, it is possible to obtain
credit from formal banking institutions, but a requirement for personal guarantees from the
directors of the GIE, as well as collateral for securing the loan mitigate this potential. A lack of
coordination and missing links within the implementation of the Morocco Green Plan comes
up again very strongly. One male farmer within a focus group discussion asked the question
of why the government engages in the supply of free safron bulbs to farmers, but does not
buy the safron from farmers at reasonable prices. The GIE is asking a question of why the
Morocco Green Plan has implemented a model that it does not want to fund in order to get it
of the ground.
Amid all of this confusion, traders and market intermediaries buy safron from the local mar-
ket at prices close to the cost of production and sell onwards to national markets or interna-
tional buyers at a margin of more than dirhams per gram. With estimated production of
over kg per year in Taliouine, possession of cash translates into market power, and at
present, power does not lie in the hands of the cooperative or the farm household due to a
lack of cash.

. Relections

Given our focus on the gendered implications of pillar II of the Morocco Green Plan, our unit of
analysis has been the agricultural cooperative. Cooperative production, processing, and mar-
keting are being promoted, given conventional wisdom that small farmers are disorganized
in production and marketing and, therefore, subject to opportunistic behavior of marketing
agents both Moroccan and international. Focus group discussions and key informant inter-
views indicate a farmer-centric view that disorganization at the landscape level relects a lack of
coordination between government agencies, where roles and responsibilities of public bodies
are either not clearly deined or overlapping. Traditional transfer of technology models within
the system of public extension continue to persist, with litle ostensible movement toward
more participatory approaches for innovation that embody joint learning and action-oriented
research. Subsidies on primary inputs seed, fertilizer, fuel and public investment in infrastruc-
ture equipment and buildings for agricultural cooperatives are provided without matching
investments in the provision of technical training, for knowledge on efective practices related
to storage and transportation of perishable commodities to national and international markets,
as well as in the provision of knowledge on efective management practices. In those limited
instances where technical assistance is provided and gratefully acknowledged by producers,
there are claims of interference by the Ministry of Interior in price ixing such as for rose pet-
als . This, in collaboration with parastatal processing plants, such that the focus for many small
farmers is on quantity and not necessarily quality. We are unable to validate the claims of price
ixing, though anecdotal evidence does point to the same. If found to be true, the Green Plan
objective of enhancing access to national and international markets is severely undermined.

Our indings also reveal that constraints on land, labor, and equitable access to working capital,
exacerbated by the impact of sustained drought on productivity potential, are crosscuting for
274 Agricultural Value Chain

all four value chains studied. While these issues can be addressed over-time through appropri-
ate sectoral and cross-sectoral interventions, it is the risk of elite takeover within cooperative
structures that presents a danger for further entrenchment of rural poverty. More efective
organization of production for the commodities studied, each with its own unique speciicity
of production and demand, may ironically lend itself to invited commercialization and thereby
capture of cooperative production units away from cooperative decision making by its mem-
bers and toward private vested interests. How commercialization can be managed, without
exclusion of the marginalized particularly women will depend on how the government even-
tually comes to terms with many diicult issues

1. One premise of the Green Plan is a desire to move away from a history of paternalism
through the subsidization of agricultural production and state-led directives for cooperative
production. Relaxing the boundaries around which civil society organizations are permit-
ted to operate would be in keeping with the tenets of the plan yet recent geopolitical events
within the region Arab Spring may be of signiicant worry for national security systems.
How civil society organizations in rural areas cooperatives, community-based organiza-
tions, non-governmental organizations, self-help groups, etc. achieve greater independ-
ence in terms of organizational structures and economic independence over time remains
an open question. Within the current environment of regional insurrection and instability,
it is quite possible for paternalism to be strengthened as a counter measure to potential
insurrection.

2. In arguing for greater independence of civil society organizations to operate, for the en-
hancement of well-being within rural communities, there is a clear need for the state to tie
the Green Plan with a wider process for area development not simply agricultural de-
velopment. While value chain initiatives, undertaken on a commodity basis, are necessary
and important in terms of improving livelihoods, trade-ofs between economic empow-
erment and well-being are likely to lead to potential disempowerment of marginalized
members of society. Our analysis reveals that many of the women within the cooperatives
visited work signiicantly long hours often or more hours in a day , with limited op-
portunities for institutionalized child care. While reports exist of increasing enrolment of
girls into high school [ ], given improved economic circumstances, our analysis indicates
that rural families may have no choice but to keep their daughters at home. Despite subsi-
dies on school fees and options for boarding, our discussions revealed that in many cases,
school enrolment in peri-urban areas is not sustained given high transportation costs for
children to return home for the weekend or for national holidays. Family dynamics and
livelihood structures have ostensibly changed with the proliferation of production coop-
eratives. Young mothers are more than likely to have their adolescent children accom-
pany them to the cooperative. Some cooperatives provide child minding and educational
services, but most are basic in terms of infrastructure and their ability to provide social
services. With larger families, the burden of child care often, therefore, befalls on older
siblings sisters. One trade-of from an economically empowered mother, through more
 Gendered Dimensions of Key Value Chains in Southwestern Morocco 275
http://dx.doi.org/10.5772/intechopen.69827

proitable and equitable interventions within value chains, is a potentially disempowered

daughter, who may be deprived from sustained educational activity, and equally impor-
tant, the ability to learn through play.
3. Within our focus group discussions male, female, mixed groups , there was consensus
that the household, as a unit, was much beter of economically since the proliferation
of production cooperatives. Males clearly acknowledged changes to social and cultural
norms related to the participation of women in nontraditional economic activities. Females
felt more independence and a sense of empowerment given greater respected accorded by
males within their household, and within their communities more generally. When asked
if this is a fundamental change in societal norms, and based on self-realization, there was
much concern related to long-term embedded change. Males appeared to be content with
the realization that increased earnings through economic engagement of female members
within the household is an increase in their own gendered disposable income. Increased
female earnings translate into reduced burden for males to cover household expenses,
inclusive of child rearing, educational and medical expenses. With the risk of potential un-
raveling of economic opportunities, for example within the argan sector, will restructured
social and cultural norms for female economic engagement persist, or will they revert to
historical constraints?
4. The current system of implementing the Green Plan, through paternalistic and subsidized
initiatives, invites market intermediaries to utilize inequities and marginalization as entry
points for exertion of market power. Within the prevailing literature on agricultural in-
novation, we ind an overwhelming focus on value chain development approaches. While
improvements in marketing margins, through more efective linkages between producers
and other actors within the value chain is valid, there is limited atention paid to the trade-
ofs that occur at the household and community level through innovation. These trade-ofs
arise in several diferent areas, such as on those related to health and nutrition, education,
opportunities for farm and of-farm income sources and sometimes more conspicuously
in terms of inequitable gender-based access to resources and economic opportunities for
gainful employment. A focus on innovation systems adds value to initiatives focused on
improving eiciencies within value chains by adding an element related to a beter under-
standing of how change occurs, and how to facilitate more mutually beneicial and sustain-
able social and economic interactions between stakeholders. Innovation systems are inher-
ently social systems, as they comprise a set of actors who are bound by a common goal for
seeking avenues to mitigate existing challenges and constraints which are of mutual con-
cern. These systems naturally exist, but require facilitation and coordination if they are to
achieve efectiveness in terms of enhancing eiciency, equity, and equality in opportunity
to access resources inclusive of knowledge resources . Project-based initiatives undertaken
through donor-funded initiatives are unlikely to succeed in terms of institutionalizing ef-
fective process for innovation, within and between value chains, and through linkages with
wider area development approaches. This is largely due to current geopolitical concerns
which are likely to limit the number and breadth of organizations licensed to undertake
276 Agricultural Value Chain

such activities as well as time-bound project timelines which are of short duration. Interna-
tional and national research agencies are likely to be beter placed to facilitate innovation
systems that embody the notion of inclusiveness and equity. Whether they are ready to
take on this responsibility remains moot, particularly in terms of raising potentially sensi-
tive issues related to social policy reform and empowerment of rural communities.

. Future directions for research

Findings from this study point to several areas that require further investigation

1. What are the drivers for institutional change within the rural areas of Morocco, and more gen-
erally within the wider Middle East-North Africa region? This requires a beter understand-
ing of institutional capacities within rural areas, particularly in terms of gender-sensitive
development, and toward the uncovering of avenues for how public-private partnerships
can best be fostered within a contemporary environment of regional instability economic,
political and conlict.
2. How competitive are the producer cooperatives set up under the Morocco Green Plan and
are they able to stand on their feet without signiicant state support subsidies ? In addi-
tion to economic analyses, there is a need for beter understanding of the long-term risks
to empowerment and intra-household dynamics which may afect long-term cooperative
survival.
3. How have female cooperative members invested their increased income sources? How much
of this has been directed to consumption within the household, to investment in productive
capital assets eg., livestock , and how much is being directed to innovation technologies,
techniques, vocational education, and training ? An answer to this question may assist in
shedding light on those impacts from cooperative formation and participation that may not
have been contemplated within the original conceptualization of the Morocco Green Plan
and into areas that deserve greater atention in terms of enhancing equity in access to private
and public goods and services including rural advisory services

Acknowledgements

The authors are deeply grateful to the Institut National de la Recherche Agronomique INRA
in Agadir for access to the ield and for very valuable technical discussions. We are particu-
larly grateful to Abdelaziz Mimouni, Fouad El Ame, Zakia Bouzoubaa, and Youssef Karra
from INRA. Appreciation is also accorded to Mohamed El Otmani, Abdelhamid El Mousadik,
Aissam El Finti, and Zoubida Charrouf for providing us with clarity on contextual social
systems with the rural areas of southern Morocco. Space prevents us from mentioning others
who were equally important facilitating our study. They are listed within the acknowledg-
ment section of the working paper from which this chapter has been writen [16].
 Gendered Dimensions of Key Value Chains in Southwestern Morocco 277
http://dx.doi.org/10.5772/intechopen.69827

Funding for this research was provided by the International Development Research Centre
Otawa, Canada as well as the CGIAR research programme Policies, Institutions and
Markets led by the International Food Policy Research Institute IFPRI .

Author details

Shinan N. Kassam1*, Patricia Biermayr-Jenzano , Boubaker Dhehibi3 and Aden Aw-Hassan3

*Address all correspondence to s.kassam@cgiar.org

International Centre for Agricultural Research in the Dry Areas ICARDA , Cairo, Egypt
Georgetown University, Washington, USA
International Centre for Agricultural Research in the Dry Areas ICARDA , Amman, Jordan

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