Smelling the Coffee
Oct 28, 2013
All of us are working hard to help the world be a better place. In the agriculture sector we work every day to develop innovative means of financing agriculture, growing crops, and getting them to market, new ways to assist the poor break the traps of poverty and illiteracy. We combine these activities with double, triple, and quadruple bottom line measurements that seek to, notably, protect the environment, help minorities and empower those that we feel need to be empowered. Additionally, we have taken on the issues of risk mitigation, power, transport, water, storage, new seeds, new crops, new pesticides and herbicides, microfinance, rural finance, family financial services, literacy and numeracy, to name but a few. And yet we are still far from done in terms of achieving our objectives. One of our latest models is agricultural value chain development, competitiveness, and financing. We have recognized that to grow food and make a living at it, other than feeding oneself in a subsistence manner, commercial linkages need to be improved. We have acknowledged that access to markets and customers has to be strengthened, as well as production, to meet the markets needs, wants and desires whether they are real physiological needs or derived needs. We all work on these issues very diligently taking into account the best tools we have and referring to them as best practices. However the more advanced we get as advisors, donors and developers, the more our space age systems appear to be neither understandable, nor very affordable, to the people we expect to use them. So in many cases after our donor funds for support projects and programs run out, the pilot projects collapse and the people we seek to help revert back to their age-old ways of life which after all have proven to be effective after thousands of years of use - right? So we watch our good work go from tractors and roto-tillers to hoes and ox drawn ploughs, from high yield seeds, fertilizers and pesticides to traditional crops and ways of growing them. Maybe some larger farms tied into value chains, which have contracts to supply to growing food and beverage retailers survive with the new ways and it is these that set in motion the normal survival of the fittest which we have become accustomed to in our economic system. The ancient Roman "latifundia" re-emerges on the production side, powerful traders and their corporate value chains/supply chains take over the profitable market segments leaving the rest to survive as best as they can. To compete with these organizations which are highly efficient and highly productive in part by lowering costs, we are seeking to get small holder producers (farmers and their associated MSMEs in the agro food processing chains) to increase efficiency, improve competitiveness, improve product quantity and quality, and keep low prices. On the other hand we are hoping that the agricultural sector that currently employs so many in the world will absorb more labour as well as raise incomes and standards of living, and slow down the rural urban migration that is changing the face of the world. So let's pause for a minute and reflect on this "efficiency and competitiveness model" and the potential for it to meet our needs. If we look around we might see many markets where the major chunk of the sales, production and profits are concentrated within a few large transnational corporations able to mobilize human resources, production technology and finance to deliver affordable products available when and where consumers want them. This process is facilitated by the population concentrated in cities as the rural to urban migration trends continue and supermarket chains decide on the products to be offered along with the standards to be met. So can we achieve food security the way we are trying to achieve it so that all people at all times have access to affordable, sufficient, safe, nutritious food to maintain a healthy and active life? Do we have the ability amongst ourselves to help coordinate the systems, processes, and structures in place to ensure this has a high probability of happening? Do we go small, go large, go modular, go integrated, or go in all directions at once? Do we need to change the way we are doing things? How do we deal with the increase in interest in using food as an alternative investment vehicle so that our investors are able to hedge, diversify and achieve the yields required by the financial market on their portfolios? Is food, its trading and pricing, the same as oil, gold, small cap stocks, treasury bills, bonds and mortgage backed securities? How do we balance the corporate concentration that occurs when economies of scale in organized value chains, (that are very competitive, capital and technology intensive, use less labour and smaller numbers of intensively grown crops), versus the small scale, low efficiency and high cost food producers that feed and employ so many in the world? There has never been a better time than now to wake up, smell the coffee, and look at where we are really heading. Recessions, economic slowdowns and budget cuts have a way of concentrating the mind and focusing attention on what is needed to be competitive and thus survive in this world of ours. What do you think? The author has worked in the areas of agriculture investment and development including value chain financing for over ten years in Africa and Asia. He is currently involved in researching and implementing, as well as training on, risk mitigation tools to enhance the flow of funding to agriculture production and processing with a focus on Small and Medium Enterprises in agricultural value chains in emerging markets.