INVESTMENT IN SOUTH-EAST ASIA

We are delighted to wish everyone a Happy New Year! 

And to mark the occasion we have launched a new study of investment in South-East Asia.  This is a FREE publication - 70 pages of analytical insights - that you can download by clicking on this link:

Agriculture and Agribusiness Investment in South-east Asia

South-east Asia is one of the best investment opportunities in the world when it comes to agriculture and the food industry. The region is one of the most productive agricultural areas of the world, the main source of rice and high value tropical fruits and vegetables together with a growing source of feed materials, fish and meat. 

The purpose of this paper is to provide general information and context. FoodWorks Co. Ltd. is an innovative consulting group of specialists in agribusiness that will provide specific analytical and technical assistance with investment feasibility, planning and implementation for individual clients. 

We look at two main sub-regions, the Greater Mekong (Burma, Cambodia, Laos, Thailand and Vietnam) and the Brunei-Indonesia-Malaysia-Philippines Economic Growth Area (BIMP-EAGA). Singapore is the outstanding business and finance hub for the region as a whole.

We say that the main drivers of economic growth in agriculture and food are:

· Growth of the middle class,

· Increased urbanization with mega cities sucking in particularly the youth,

· Related changes in the quality, quantity and type of foodstuffs, switching from staples to value-added processed food,

· Consequent changes in agriculture and marketing, food supply systems,

· Economic and physical integration along economic growth corridors

· Increased demand for food raw materials from India and China

The most immediate investment possibilities lie in the southern-most areas, especially in Mindanao in the Philippines. More established countries like Malaysia offer smaller, but perhaps more solid niche opportunities. Burma is a longer and higher risk shot but certainly has the greatest growth prospects. Laos and Cambodia are worth a look. We are more nervous of Vietnam and Thailand partly because of governance concerns in the former and because the latter is already so mature in agribusiness.

That said, none of the South-east Asian countries are near their agricultural/food production boundaries. Investors willing to bring new technology and combine it with advanced management and marketing systems in a global context will prosper by being based in the region.

For more information on our work or to comment please do contact gqb@foodworks.ag

Tools of the Trade

I'm spurred to write this post by a recent chat I had about value chain analysis. The folk I spoke with seemed to think that a deep, formal knowledge of the subject was a prerequisite for successfully developing agriculture.

I disagreed.

Look: as a trained economist (Oxford University, Institute of Agricultural Economics which became the Oxford Department of International Development) I understand and apply ALL the formal tools from time to time during my work. These include cost-benefit analysis, financial and statistical analysis (internal rates of return,net present values, bell curves), terms of trade analysis, DRC analysis, welfare analysis etc. and so on. If you qualify as an economist you usually end up with a box of tools.

So why do people want to know which specific tools you have in your box? It's like asking your car mechanic if he understands how to use a torque wrench, or a doctor if he's familiar with a CAT scan.

There may be two answers: one is that there are so many charlatans out there, so now people worry that they'll find they've paid money and don't get results. That's fair enough. One thing you can do with FoodWorks is ask for references and you'll get them from the top people in this industry.

The other thing is that non-specialists (usually the folk that have the money - the donors and the like, the desk officers) don't understand their business. After all, they are often bureaucrats or investors. So they fall for the jargon.

"Integrated value chain analysis" (IVCA) is a real case in point. Years and years ago we used to measure marketing costs and margins. Absolutely standard, no one thought it was anything special. You just did the measurements as part of your effort to understand the market supply chain. Then IVCA came along and lo and behold, one could sell a service as a Value Chain Analyst.

What's the difference? The first kind of analysis really only captured the "horizontal" movement along the chain whereas VCA looks at the entire business system (horizontal and vertical) and tries to capture its entire value with a view to looking at its competitiveness. The "integrated" bit just makes it sound a bit more complicated in order to raise the consulting dollars.

Here's a formal definition: "The value chain is a model that describes a series of value-adding activities connecting a company’s supply side (raw materials, inbound logistics, and production processes) with its demand side (outbound logistics, marketing, and sales). By analyzing the stages of a value chain, organization’s are able to redesign their internal and external processes to improve efficiency and effectiveness." (Rayport and Sviokla 1996 - see below).

Like so many of the ideas in this area it derives from Michael Porter's work. But economists remember that Porter pretty much took the old ideas of comparative advantage in trade - basic undergraduate economics - and added a sexy overlay. The entire area of competitiveness theory opened up a whole new area of strategic planning and even more of the necessary bucks.

Now here's the thing: IVCA is indeed useful. But it's NOT magic; yes, it does require careful and systematic quantitative measurement, but that's what economist do every day of the week. And IVCA is NOT going to answer the real questions of agricultural development all on its own.

That requires EXPERIENCE and it's experience combined with knowing how to use all the formal tools in the toolbox that we at FoodWorks bring to the table. The experience to know that when all the quantitative modelling in the world tells you to make that investment, somewhere there's just that one little thing that will screw the deal, whether it's for the smallholder being stiffed by the middle-man (by the way another shibboleth of the academic world) or whether your $100 million feed mill is actually going to find the raw material at the right price. It takes "nous" as well as those tools.... just like it takes a real mechanic to fix your car.

Photo: GQB checking out a real world value chain at Karachi Fish Harbour, Pakistan.

PS. If you want to follow the literature on IVCA, here are some references (so you know we have them in our tool box):

'The Virtual Value Chain', John Sviolka and Jeremy Rayport

'A Handbook for Value Chain Research', Raphael Kaplinsky and Mike Morris, IDRC

COMPETITIVENESS AND PRODUCTIVITY

Competitiveness is of major importance in a global economy. Productivity includes innovation and technology transfer as well as cost-cutting and improved workforce skills. Geoff Quartermaine Bastin has led a team at the Competitiveness Support Fund (CSF -see link) in Islamabad working with J.E.Austin Associates (JAA) to write an in-depth study of competitiveness in Pakistan, the "State of Pakistan's Competitiveness Report 2008*. The study includes a case study of agriculture and another on women's access to finance. The study, based on World Economic Forum base rankings explains why Pakistan currently ranks 92nd out of 131 countries measured by the WEF. The Report also suggests what can be done to change things for the better. A copy can be found at the following link:

http://www.competitiveness.org.pk/publications_policy_studies.php

NEW YEAR AT CSF

Geoff Quartermaine Bastin and Usman Ahmed Khan in the CSF office celebrating the New Year; indeed not such a happy time in Pakistan. Usman is the Manager for Matching Grants of which CSF has 10 approved and more in the pipeline.

YES MINISTER

We sit again around an enormous table with the Minister (Interim) for Finance Dr. Salman Shah (first on the left). This was a meeting relating to the financing of horticulture as part of the on-going Task Force for which CSF (via Geoff JQB) is providing the secretariat. On the right is Amir Jahangir our senior media consultant and GJQB writing the minutes. The meeting successfully promulgated Guidelines for investing in the industry prepared by the State Bank of Pakistan and approved by the Minister at this meeting.

TASK FORCE FOR HORTICULTURE INDUSTRY

FoodWorks has worked with the Competitiveness Support Fund in Pakistan to establish a Task Force on Horticulture Finance and Competitiveness. Meetings have been held covering finance, infrastructure (especially transport, logistics and aspects such as cool chains), production/processing/marketing and quality control and standards. The first phase of this work will be completed in September 2007 with related work being carried forwards by various line ministries and private sector partners. The goal of the Task Force is to significantly increase the volume and quality of exports of major crops such as mango, kinnow, peaches, apples. For more information on what CSF and FoodWorks are doing in horticulture please check the CSF website on http://www.competitiveness.org.pk/

COMPETITIVENESS SUPPORT FUND

Geoff Quartermaine Bastin is acting as the Senior Advisor to the Competitiveness Support Fund based in Islamabad, Pakistan. CSF is a joint initiative of the Ministry of Finance and USAID with an initial financing package of US$20 million. The Fund is managed by its CEO Arthur Bayhan and has two main operational windows: technical assistance (consisting of policy advice and sector or industry assistance) and a matching grants facility where the Fund works with small enterprises on the basis of establishing links between industry, academia and government in a public-private partnership approach. Work is also starting in the Federally Administered Tribal Areas (FATA) in the trouble-torn north-west of Pakistan in a campaign to win hearts and minds via the development of small industry in sectors like livestock and horticulture. For more information on CSF, take a look at the website http://www.competitiveness.org.pk/

KARACHI FISH HARBOUR

Inspecting fish quality as part of the preparation work for the Fish Action Plan for the Pakistan Ministry of Finance (Competitiveness Support Fund). The work has targeted Karachi Fish Harbour as a critical point for intervention by the government. The Harbour exports $160 million of fish and seafood to various parts of the world, 40% to the EU. It is well below acceptable standards and the AP being prepared will recommend changes in management and upgrading of infrastructure to conform to HACCP standards.

COMPETITIVENESS SUPPORT FUND (CSF) PAKISTAN

FoodWorks has started work as Agro-processing and Food Sector Advisor to the CSF in Islamabad, Pakistan. The Fund is established under the auspices of the federal Ministry Of Finance and USAID at over $20 million of start-up capital. The money is to be spent via three windows on Technical Assistance, Matching Grants and Business Incubation for SMEs. Chairman of CSF is Minister of State for Finance, Mr. Omar Ayub Khan and the Fund's Director is Mr.Arthur Bayhan. CSF prime objective is to increase the competitiveness of Pakistan against World Economic Forum benchmarks. Geoff Quaretrmaine Bastin is travelling extensively throughout Pakistan to develop a policy-specific report on the food industry that will be implemented at Federal/Presidential level. The study will be completed in early february 2007. For more information on the CSF check out the website at http://www.competitiveness.org.pk

Pakistan: Comparative Advantage Study of the Food Processing Sector for the Competitiveness Support Fund (CSF)

The Competitveness Support Fund (CSF) has been set-up with the sponsorship/ financial assistance of USAID and the Ministry of Finance. It undertakes studies to determine the existing competitiveness of selected industrial sectors and to make policy recommendations to the highest level of the Government. The primary objective of the Study to be undertaken by FoodWorks in November ‘06 thru January 2007 is to evaluate the competitive advantage of the food processing industry and its opportunities for growth along with identification of the problems/obstacles faced by the sector. Food processing is the largest industry in Pakistan and it continues to grow as the use of processed food becomes popular especially in the cities. The list of sub-sectors includes beverages, dairy, fruits and vegetables, snack foods and cereal-based foods (wheat and rice), meat, confectionery and vegetable oil (including vegetable ghee).