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

LAOS - FORAGE GRASS SEED

Forage grass seed among young rubber plants in Laos

One of the things that FoodWorks' Partners (see Our Team) do is to develop their own agribusinesses.  This means that while we spend much time consulting for others, we keep our feet firmly rooted in real world agricultural challenges.  These are not only agronomic, but sometimes involve international agreements, partnerships between groups with different goals and building relationships with local smallholders and communities. Of course there is always an environmental impact. Agricultural development is never simple – which is what makes it interesting.

Eddie Vernon, Senior Managing Partner, is a case in point. He has developed his own agribusiness, Happy Farmers Limited (HFL), in Laos (a country that probably falls into the new designation of a “non-permissive environment” - meaning dealing with the government and the legal system is a challenge all of its own) based on contract farming grass seed for forage. HFL has been an innovator in the producing ''Brachiaria'', a genus of grasses originating from savannas of eastern Africa. These grasses are widely used as livestock forage. The genus includes 97 species, which can be found in tropical and subtropical climates. He also has a successful exotic plant nursery in Thailand where he produces Tillandsias  – or so-called “air plants” used for decorative purposes. 

Eddie has also been heavily involved in agro-forestry, specifically with agarwood, which is the tree from which the highly valuable “oudh” incense is prepared. He’s always looking ahead – marketing and development go hand-in-hand with actual growing things -  and one possibility has been to produce forage grass seed between plantation tree crops. Now (as shown in the photo) this is starting to happen.

As Eddie reports, the farmer of the crop in the photo is harvesting about 300 kg of HFL grass seed per year worth about US$3.75/kg. The grass only needs to be planted once and can be harvested once per year for many years, though in the case of being planted between young rubber trees, it is likely that the rubber trees will shade out the grass around the 4th year. The grass also provides a forage for livestock and protects the sloping land from soil erosion. The farmers do not use any chemical fertilizers or pesticides so it is all organic (though not certified as organic).

The story of the development of HFL’s grass seed business is worth recording since it illustrates the extensive and complicated personal and enterprise relationships that go into this kind of work. Eddie started in Nga District of Oudomxay Province (Northern Laos) in 2006 with about smallholder farm 10 families  and reached over 500 families by 2011.  He has produced Mulato II hybrid brachiaria (Bracharia ruziziensis x B. decumbens x B. brizantha) in northern Laos under contract to Ubon Forage Seeds and Tropical Seeds LLC. Seed production in Laos has now expanded to include Cayman hybrid (B. ruziziensis x B. decumbens x B. brizantha) and Mombasa guinea. 

The Faculty of Agriculture at Ubon Ratchathanee University had been involved in tropical forage seed research since 1995 and had built up an international reputation for excellence in forage seeds (See Reference 1 below). A Memorandum of Understanding was signed in 2004 between TropicalSeeds LLC and the Faculty to produce brachiaria hybrid forage seeds. Tropical Seeds LLC made the business decision in 2003 to come to Thailand based on forage seed quality, smallholder experience and professionalism. Tropical Seeds LLC, a subsidiary of a Mexican seed company, Grupo Papalotla, now employs a seed producing and seed research group, Ubon Forage Seeds in the Faculty of Agriculture, Ubon Ratchathani University, to manage seed production, seed sales and export, and to conduct research on existing and new forage species.  

With the addition of Happy Farmers Ltd., over 200 tons of seed is the forecast output in 2013 which is mainly exported overseas (95%) the remainder being sold within Thailand. This is a great achievement and a classic example of how the academic world works with commercial agribusiness across borders benefiting smallholders and the final users of the grass seed - the cattle that eat the forage (and of course their owners who get increased productivity).

  

Reference #1: A paper entitled “Thailand and Laos: research to village farmer production to seed” authored by Dr. Michael Hare and colleagues (For a copy email: michaelhareubon@gmail.com) discusses in detail the seed production of the six forage species and how the development in villages of a smallholder-farmer seed production program has had positive social and economic outcomes for the village seed growers and enabled farmers in other countries to receive high quality forage seeds. The strong emphasis on seed quality, high purity, high vigour and high germination, has had a large impact on tropical pastures in more than twenty tropical countries in Asia, Africa, the Pacific and Central and South America, enabling pasture growers to establish more than 20,000 hectares of pastures over the past three years.

 For additional information or comment, please contact Eddie Vernon directly on eddie@foodworks.ag

SOMALILAND - FISHERY ASSESSMENT

FoodWorks' Robert Lindley inspects fish at Berbera

FoodWorks' Senior Fisheries Specialist Robert Lindley has been in Somaliland - and says he's impressed by what he found - at least in terms of the overall economy and civil society. Working with the CADG Group to look at investment possibilities for the fishery Bob visited fish shops in the capital, Hargeisa, and the fishing industry at Berbera.

Somaliland is NOT Somalia; what used to be the British Somaliland, a protectorate not a colony, is democratic and fiercely independent (since 1991).  It's peaceful, relatively secure and has a significant diaspora of British-Somalis many of whom are returning to their roots bringing investment and western expectations of the way things should be run. Food safety standards are still not what they should be, but at least there are people returning who know why it's important to have them.

These Red Snappers are some of the largest we've seen

The economy is driven by livestock - live cattle, goats/sheep and camel exports to Saudi Arabia and the UAE via the deep water international port at Berbera. But the long coast line should offer rich pickings for artisanal fisher folk. In this case what Bob Lindley found was surprising.  There is a fishing industry and various aid agencies (e.g., DANIDA) have built cold stores, ice-makers and worked  with the fishing community. But the reality at Berbera (which is the only place where fishing is done on the entire coast) is that the industry has pretty much collapsed. The fish that are taken are all mature - check out the red snappers in the photo - an indicator that marine stocks are hardly fished. There are less than 50 operational boats, the infrastructure is broken and the international projects have been abandoned.

What's the reason? Fisher folk say they would rather work in the more climatically comfortable capital city of Hargeisa in the uplands. Fishing is a hard, dangerous job and temperatures get up to  around 42 deg C. Equally the rewards are limited compared with other livelihood options. With the economic boom in the capital, jobs are easier to come by and the living conditions are better.  The removal in 2009 of a ban by Saudi Arabia led to a surge in live animal exports that created jobs for truck drivers and handlers so there are just too many other better paying opportunities.

What remains of the fishing fleet

What remains at Berbera's fishing port is a quaint village, largely abandoned by its labour force. There are still some shops and some people fish, mainly for the local market and to send the occasional truck up-country.  Things probably get more lively in season, but overall the impression is one of terminal decline.

So what are the opportunities? We won't disclose our commercial advice to our client, but we know that it will take a rather large investment of public funds to rehabilitate the fishery.  The World Bank apparently has a project in the pipeline that we'll watch with interest. It will have to deal with a complex of problems starting from the competition for labour from more attractive jobs, the collapsed infrastructure, a lack of boats or serious boat-building capability and the fact that the market demand for fish is limited.

It's this last piece that is most puzzling, because looking at the quality/size of what can be caught it seems that there should be a great high-value market, especially in the rich Gulf States. The reality is somewhat different. In fact the UAE gets supplied with the same kind of fish from the Gulf of Aden more cheaply from Oman and nearer to home. With lack of volume, no quality control, high shipping costs and lack of air transport, Somaliland can't compete. Hopefully this situation will change as Somaliland continues to develop, but meantime the fishery remains one of the few in the world that is under-exploited. Not necessarily a bad thing.

Please do contact Robert Lindley directly on rhlindley@foodworks.ag for more information on this article or any other fishery related business.

WORLD TRADE IN SPICES - SAFFRON

Saffron trader in Herat City - Photo: Geoff QB

Earlier  this year we worked for the USAID-sponsored Afghan Small and Medium Enterprise Development Program (ASMED - see Note 1) on the value chain development of the saffron industry. This took us to the old historical city of Herat in the west of the country and then further afield internationally to track the saffron trade through Turkey, the UAE, Spain and beyond to its final markets in Europe and North America.

In its modern incarnation the Afghan saffron industry has developed with labour returning from refuge in Iran and donations of planting material from the Netherlands.  The main industry is to be found in the districts around Herat City.  Production is low (1,800 kgs), and the value chain analysis shows that while the retail price of saffron can be very high (as much as $8,000 to $10,000/kg in western markets) Afghan farmers receive very little of this ($1,300/kg).  

We disputed the popular notion that saffron (derived from the Crocus Sativa flower) can substitute for poppy at any meaningful volume. Profits accrue to merchants who have links through “friendship channels” to markets in e.g., Germany and the USA. In our analysis, the Afghan saffron industry is seen from the perspective of the international industry that is dominated by Iran which exports 80 to 90 percent of the available world supply of saffron.  

Over half of this is exported to Spain where it is re-processed and re-packaged as “Packed in Spain”; the more unscrupulous Spanish companies sell it on as “Spanish Saffron” at a premium price.  Prices for saffron have trended upwards but are seen as responsive to production, albeit with a rather inelastic price-supply function. Iran has tried to push the price up with some success, aided perhaps by a drought in 2008. 

Saffron cultivation in Iran - Photo courtesy of Reuters

Elsewhere Iranian saffron meets the consumer in Dubai, and through traders in Istanbul. Consumption is primarily for food use in ethnic cuisine but saffron has medicinal and other traditional uses. Part of its value accrues from being a traditional gift especially within the South Asian community; much of the saffron purchased expensively in the markets of Europe and North America travels back to the sub-continent where saffron used to be grown but is now in decline, partly as a result of these imports. 

The Assessment Report provided recommendations for the development of the saffron industry in Afghanistan that include a focus on industry structure and regulation especially related to maintaining a distinct brand image for the product together with its current relatively high standard of quality.  Suggestions were made for further work by the donors and the possibility of investment in contract farming on a public-private partnership basis (Note 2).

Keywords: Crocus sativus L., saffron, Afghanistan, Iran, Spain, Greece, Morocco, Mashhad, Herat, Alicante, Novelda, Kashmir, corms, bulbs, Dubai Old Souk, Spice Bazaar, Istanbul, paella, Saffron tea, poppy.

Note 1: This Assessment Report was produced for review by the United States Agency for International Development. It was prepared by the joint venture partnership of Development Alternatives, Inc. (DAI) and Agland Investment Services, Inc. under Contract 306-C-00-07-00503-00. Currently the report document is not for publication and the opinions expressed in it and above are solely those of the Study Author, Geoffrey Quartermaine Bastin. 


Note 2: Agland Investment Services, Inc contracted FoodWorks and provided an enormous amount of support that we wish to acknowledge and thank them for.


We will be quite happy to answer your questions: contact Geoff on gqb@foodworks.ag

INVESTING IN AGRICULTURE

Agrimarkets - FoodWorks Commodity Bulletin - has consistently argued that investing in agriculture and agribusiness - the "farm to fork" food supply chain - is a better option than most for a place these days to put your dollar (for that argument in full, click here).  We are putting our dollar (such as it is) where our mouth is and have embarked on an effort to build an "Agribusiness Investment Fund". 

World food security is under severe threat as the population tops 7 billion. World food prices trend upwards and governments (e.g., the G20) and international agencies (e.g. UNFAO, World Bank etc.) warn of an impending crisis. Much of the demand pressure comes from the new and growing middle-class in Asia (especially India and China). This situation presents an opportunity. As food commodity prices increase so supply is brought forwards. This means there are more folk willing to invest in agriculture, agribusiness and food processing.

Our location in Asia is opportune since gurus such as the Singapore-based Jim Rogers (click here for what he says about Myanmar) and emerging market experts like Mark Mobius have long argued that the growth area for agricultural investment is here, East of Suez (see Note 1 below).  We agree.  Of course Latin America is making great strides in agriculture, but FoodWorks' technical and geographic expertise is right here and it is here that we intend to focus, at least for the time being.

FoodWorks is currently in process of working with various clients on bankable projects in the MENA/East Africa and Asia-Pacific region. These projects will include the full agricultural-agribusiness-food value chain together with related support industries.

Project Concepts

We are on the lookout for project concepts and for experts to help us do due diligence (Note 2 below).  If readers have a well-thought out concept, then we'd be glad to consider it (see Note 3 below). As an example of the concept approach, please take a look at something we've done in Cambodia - click this link to Cambodia Corn Project.

Professional experts in agriculture and agribusiness

For experts, we need CVs (bio-data) from persons that combine their professional experience (minimum Masters degree qualified and 10 years of work in the agriculture-food value chain) with geographic experience.  We find that pure technical ability - excellent though it might be - must be grounded in cultural and linguistic understanding for it to be effective.  So you must have worked (and ideally be resident) in our geographic space.

For more information or to send your CV or project ideas and documents, please contact me, Geoffrey Quartermaine Bastin, on gqb@foodworks.ag.  All communication is in complete confidence.


NOTES

Note 1: These individuals are referenced purely because for some years they have argued generally and in public for investment in agriculture and agribusiness in emerging or frontier countries. Both are highly respected investment advisers. Neither of these persons is associated in any way with FoodWorks and neither have endorsed this particular initiative nor this company. 


Note 2: This is not an offer of employment or even a recruitment drive for specific positions. We want to build our network or database of highly experienced people and organisations so we are prepared for the due diligence feasibility and implementation work when it comes.


Note 3: We'll look carefully at your concept with no obligation at all to take it further.  It will be reviewed in complete confidence. Any concept paper can be submitted as a short (10 slide) PowerPoint or a 2-3 page written paper or both. 

IRAQ - FRUIT JUICE FACTORY PROJECT FEASIBILITY STUDY

Working with Agland Investment Services, Inc. and The Louis Berger Group, we have successfully completed a short technical assistance mission with the USAID Inma (Ar. Growth) Agribusiness Program. Based in Baghdad this Program covers the entire country and has had great success in developing in particular the livestock and horticulture sectors.

Iraq produces about 1 million tons annually of various fruits - grapes, pomegranates, apples and oranges are the main ones.   The bulk of the production is in the north (known as Kurdistan, an autonomous province with some distinct differences from the Arab south).  The focus of this one month mission was to look into the feasibility of converting some of the apparent seasonal surpluses of fruit into juice.

Our mission modelled a small-scale process line of just 24 tons/day of fresh fruit input and produced a 100% juice drink along with a pulp-based "fruit drink".  We looked in detail at both the technical aspects of putting together a factory (raw material supply, location, buildings, machinery, packaging etc.) and the financial aspects of cash-flow and return on investment (ROI).

The bottom line seemed to be that while Iraqis drink fruit juice in copious amounts (the photo illustrates a street level "juice bar"), much of it is in the form of "fruit juice drinks" imported from neighbouring countries like Iran and Turkey.  Our spreadsheet model provided a theoretical positive ROI but this would be in a very competitive real-world market and where the fresh fruit price might in fact be too high for a stand-alone factory to be profitable.

Nevertheless, we are looking at other implementation options and we hope this may result in another mission in the New Year. What we hope to find is an Iraqi investor who is already in an existing beverage business (perhaps water bottling) who wishes to add a product line and perhaps grow his own supply of raw material.

For more information please contact gqb@foodworks.ag

CAMBODIA: CORN - PROSPECT FOR THE FUTURE

Cambodia holds a key position in the Greater Mekong Sub-region (GMS) and has the potential to be the food basket of South-east Asia.

Fed by the Mekong River and the site of the unique Ton Le Sap water body (visible in the satellite photo), the country has excellent soils and wide areas of flat, fertile lands. Access is overland to neighbouring Thailand and Vietnam and to the sea at Sihanoukville.

Cambodia grows rice, upland perennial crops such as coffee and rubber, oil palm and corn (maize). With a population of over 14 million recovery from the civil conflict of earlier years has been impressive and there is a stable government based on an Asian form of democracy and a constitutional monarchy.

Rated B+ in terms of official country risk and somewhat lower on the World Bank's Index of Doing Business than it should be, Cambodia has actually attracted large amounts of foreign direct investment.  Overall China is the largest investor but other investors from Taiwan, Korea and Malaysia have been prominent. Surprisingly this year the UK has led the investors.  FDI is welcome and with a tax rate of 20% and various tax holidays, Cambodia has set its heart on being the business destination in this part of the world.

In terms of agriculture, the Government has seen investors come and go. Political disagreements with Thailand have meant that the larger Thai agribusiness companies such as Charoen Phokphand have been wary of their investments; many of the other Asian investors have been property speculators who took Economic Land Concessions (ELCs), sat on them perhaps with minimal investment and then hoped to have turned a speculative profit as land prices have risen.  So not as much progress has been made as could have been.

The Government is sick of this circumstance. So there is every official encouragement for serious long term real investment based on large-scale farming with good management and technology.

In this case, with our partners we have developed a concept-level corn project.  Details may be downloaded at this link - CAMBODIAN CORN PROJECT

In brief, we are planning to develop a start-up ELC of 3,000 to 5,000 hectares for irrigated corn (maize) with a target three crops per year aimed at the animal feed market. The project can be scaled up to 20,000 hectares once success has been assured.  We envisage an initial capital investment of US$15 million (depending on needed infrastructure).

Corn prices are at their highest level for years (see analysis on our sister site Agrimarkets) but at average long-term prices (which we always use for analytical purposes) of half the current price, this project looks very attractive.  Demand for animal feed is growing sharply in Asia as economic growth increase middle-class incomes and as people eat more meat rather than rice.  China, Korea and other Asian countries import corn and the market is growing.

With our partners we intend to develop this project in the coming months, laying a base for similar developments throughout this region.  FoodWorks will operate as the development facilitator, putting the pieces of the investment puzzle together and ensuring that the projects, wherever they may be, are undertaken with due regard for local communities and environmental safeguards.

For more information please contact: gqb@foodworks.ag

World Food Demand and Population

Geoff Quartermaine Bastin has posted a very personal and emotional article on our sister site, Agrimarkets.

Entitled "Somalia - Tip of the Iceberg?"  the article looks at the basic population growth figures in Sub-Saharan Africa and asks the question "Will famine become the norm?".

His argument is based on population doubling times. A population growing at, say, 2% per annum will double in 35 years.  Many of the least well off and most dysfunctional countries have growth rates that significantly exceed 2% - and they cannot feed themselves even at present.

GQB wonders whether conventional approaches to agricultural development can possibly bridge the gap between demand for food in these countries from much larger populations and supply from resources that are impacted by e.g., climate change or the neglect by governments.

Agricultural productivity (output) has grown by only 1.5% in the last  decades and this is well behind the increase in population that has come about from successful health programmes.

Geoff says we've reduced deaths at birth only to starve the people who have survived.  Aid budgets are disproportionately aimed at high profile and easy to implement health programs; USAID's budget for health was US$6 billion in FY 2010, agriculture received only $1 billion.

No one is against improved health and we at FoodWorks see that as an essential element (along with education) in improving agricultural productivity.  But agriculture itself and its supporting infrastructure cannot be neglected - but it has been.

Geoff doubts that agriculture can catch up given the laggardly nature of aid agencies that seem baffled by the industry. But he does see a solution in the private sector.  High crop prices and good margins mean that increasingly the private sector is taking on the burden of  development. Private agribusiness has the resources to invest in R&D and capacity to transfer the technology to where profits can be made.

The question is, how equitable will be these transfers and will they come in time to prevent more humanitarian disasters like Somalia?

Follow our market  analysis and comments daily on Twitter @Agrimarkets

WORLD AGRICULTURE and FOOD COMMODITY MARKETS BULLETIN SERVICE

FoodWorks is adding an important service to its regular consulting work. FREE!

There can be no doubt that the world is heading for a food crisis in the coming summer. Rising food prices drive more people into poverty and put brakes on the world's recovery from recession. Poor, hungry people lead to civil instability and a slower recovery means less jobs.

We need to act now!

Some of the major factors that have been pushing food price indices to their highest levels include:

Demand side

* Rising population – the world is adding 80 million people every year. Moreover, the majority of these people are in developing countries which have a limited agricultural resource base. As an aside, health programs, laudable as they are, impact more rapidly than food supply initiatives. So in countries where the population growth rate is highest, the Malthusian boundary is closer than we think.

* Rising incomes – the fastest income growth rates are also in those countries with large populations and above-average growth. Whereas the aim in the high income countries is to cut back on food consumption (we worry about obesity), a large proportion of the world’s population is moving towards increased consumption of eggs, meat and milk. All these commodities are poor converters of food adding pressure to the demand for staple foods.

* Bio-fuel – We are less concerned about bio-fuels. While the USA grew about 420 million tons of grain in 2009 and put 28 percent of that into bio-fuel, it is surely the case that without the ethanol program this amount of grain would not have been grown. It is disingenuous to take the bi-fuel grain and say “it could have fed millions of people”. Not so, without the demand for ethanol, at least a proportion wouldn’t have been grown. That said, this area of consumption represents a significant part of the demand for natural resources and has its own impact on the environment.

Supply side

* Water deficits – water is the elephant in the room. Aquifers are being depleted everywhere. Sanaa, the capital of Yemen, will soon have no water supply whatsoever. Melting glaciers in the Himalayas will first flood Pakistan (as they did last year) and then the absence of water will starve the largest irrigation system in the world.

* Climate change – however it is measured, and despite the skeptics, there seems enough evidence that the pattern of the world’s climate is changing with large dustbowls developing in Central Asia and Sub-Saharan Africa. Soil erosion and the damage to the eco-system from e.g., oil palm being grown in Indonesia also give huge cause for concern.

* Loss of land to non-farm use – as the human population grows people migrate to cities in search of jobs that are almost always more remunerative than agriculture. Mega-cities are consuming land for housing and industrial use at an enormous rate.

* Technical limits to productivity (yields) – the “Green Revolution” of the 1960s and ‘70s was based on large increases in land productivity. But the growth in yields cannot be exponential. Already many developed countries have reached the limits of what the land will yield. In the developing world yield increases, obtained at considerable cost, are frittered away because of lack of infrastructure, e.g., for storage and drying. Perhaps 40 percent of the production of food in these countries is simply wasted before it ever reaches the table.

All this has happened in the context of the public sector – national governments, multi-lateral aid agencies and the other donors – losing heart for agricultural development. Lack of investment in agriculture, its infrastructure and its skills has eroded the capability of many countries to deal with the crisis that is now on us.

With all the above in mind, FoodWorks has recognized that there are nevertheless opportunities. If governments will not or cannot act, then they should stand aside and let the private sector and the profit motive take over.

It's an urgent priority to mobilize capital and expertise and get it to work!

In this case, we at FW are developing a commodities market analysis service that not only looks at price and market trends in terms of the supply-demand balances of the major food and beverage crops, but points to related investment opportunities.

We will start with the basics of the food business, the staple crops, and focus on wheat, corn (maize) and rice. We will then add oilseeds and oils. As we progress we will include fertilizers and sugar and coffee and dairy.

We’ll do it (at least initially) free as a service to our clients and to facilitate the investment and development projects that are our bread and butter. We’ll bring to this not mere quantitative analysis, but the lengthy experience needed to see what changes in the numbers really mean on the ground with the farmers and those buying in the market.

And if you'd like to us to answer specific questions - free - by all means just email foodworks@quartermainesworld.com

Background note: FoodWorks staffers have had many years of experience of both public and private sector project work in every sector of agriculture and agribusiness. We are not academics, but people who have real world experience of how the markets work.

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

AG SECTOR ASSESSMENT IN SOUTH SUDAN

We have just completed an assessment of agriculture in the Equatorial Region of the world's newest country (on 9th July South Sudan becomes the world's 193rd country). The work involved extensive field trips West of Juba to Yambio (by plane and road) and around Yei in Central Equatoria State and Torit in the East. We also took a look at the Uganda border point at Nimule that feeds almost all foodstuffs up the main road to Juba.

That the most important feature of the sector; Juba is expanding wildly with the excitement of independence from the Muslim North and an influx of Sudanese returnees and Kenyan and Ugandan job-seekers. But almost all the food is imported despite the enormous potential of the so-called "Greenbelt" that runs along the border with Uganda and the Democratic Republic of Congo. While Eastern Equatoria is rather dry, once one moves West past Yei the land is green all year round. This is classic equatorial rainforest with up to 2,000 mm of rain annually and reasonably good soils; potentially this region can be the bread and fruit basket of Africa.

However the emphasis should be on the word "potential" because right now there is almost no infrastructure to support commercial smallholdings. The main roads are reasonable, and one can reach Juba from Yambio (right in the heartland of the greenbelt and a considerable town) in 9 hours, but there are no post harvest facilities (cooling, drying, storage) etc. and the largest single donor-funded project FARM SUDAN (USAID, $55 million) aimed at tackling this lack has been stymied by confused policies and administrative difficulties.

So through much of the region one finds returnee homesteaders struggling with very limited resources to re-establish their small plots of maize, sorghum and cassava. These people receive seeds and tools from the many NGOs operating emergency relief but the "truck and chuck" approach doesn't really engender sustainable development and there has to be a paradigm change before the potential of the Greenbelt is realised. In the meantime food security is an important issue with the World Food Programme (WFP) estimating a possible 3 million people are at risk.

The other issue is foreign investment. There is huge interest in the area - for example we came across Dole looking at pineapple in Yambio. Large-scale investment in agriculture will have to be handled very carefully with regard both for the returnees who own the land under traditional rights (so it's not simply a case of the new Government giving concessions away) and the hugely sensitive rainforest environment. Climate change is a real issue here and it is inexplicable that USAID has discounted this in their approach to development in South Sudan (an assertion made on the basis of a direct quote from responsible persons in the AID Mission in Juba).

Another concern is the influence of the Lord's Resistance Army (LRA) in some of the most productive land between Yei and Yambio. We saw burned-out villages and social infratsucture (clinics, schools). We also saw elements of the Ugandan Defence Force deep inside Sudanese territory, so the question of civil instability is raised.

Despite these concerns, one can be optimistic about the future. Once South Sudan joins the East African Community (EAC) as indeed it will shortly after 9th July, we will see much more assistance and investment from neighbouring countries. Food supply to the cities and support for the development of a viable smallholder sub-sector will remain the areas for work going forwards.

For a more personal perspective on Southern Sudan, please check out Quartermaine's World

Photos:

Smallholder near Torit, Eastern Equatoria State

Aerial view of gardens over the Greenbelt

Progressive farmer at Yambio, Western Equatoria State

A NEW WORLD FOOD CRISIS?

The news media are full of new concerns about a world food crisis in 2011. FoodWorks and its affiliated companies in Project Partners have been working for decades in the fields of rural development and livelihoods in agriculture, not to mention the more commercial aspects of agribusiness, food processing and related technologies. We believe we have something significant both to contribute to the current discussion and to offer as experts in the entire "farm to fork" value chain.

First, let's review the current concern that is building in institutions like the UN's Food and Agriculture Organization (FAO) which has the primary task of providing early warnings about food shortages. Then we'll go on to say something about the fundamentals of this problem that is not easily going to disappear.

Jacques Diouf, the Director-General of FAO, has underlined with some simple facts the need for a new "Green Revolution" to provide food for hungry nations. There are a billion people on Planet Earth who go hungry right now. World food production will need to increase by 70 percent to feed a population of over nine billion people in 2050. With limited land, farmers will have to get greater yields out of the land already under cultivation. In a strikingly direct statement entitled "Price volatility and food shortages to remain" Mr Diouf says that the FAO Index of Food Prices rose again sharply at the end of 2010, heralding the possibility of another major food crisis. Coming from FAO, but with support from statements made by President Sarkozy of France recently about commodities prices and food riots and the US Government's "Feed the Future Initiative", this is not scaremongering.

FAO rightly identifies the underlying structural causes of the emerging crisis. As development professionals, we at FoodWorks absolutely support this analysis.

1. Falling investment in agriculture: the share of agriculture in official development assistance (ODA) dropped from 19% in 1980 to 3% in 2006, and now stands at around 5% - it should amount to $44 billion per year. ; the budgetary expenditure of low-income food-deficit countries on agriculture represents about 5%, when this should be at least 10%; finally, domestic and foreign private investments of around $140 billion per year should amount to $200 billion.

2. Unfair terms of trade for commodities: The OECD countries protect their agriculture with a total support estimate of $365 billion per year while encouraging through policy changes free, unsubsidised agriculture in the developing world. Non-tariff barriers also restrict trade.

3. Non-food industry speculation in agricultural commodities: there is considerable evidence that hedge funds and other, non industrial users of agricultural commodities take advantage of price upswings that drive the actual commodities to price levels that make their use as raw materials too costly. Not only do price surges take food directly from the mouths of the very poor, but they damage enterprise throughout the value chain, thus entrenching food shortages.

The blunt fact is that human population growth is leading to a Malthusian crisis in developing countries where the usual solution, technical change, cannot easily increase supply.

Tanzania is a good example: the population is growing at nearly 3% which means it will double from 40 million to 80 million in less than 30 years. But the agricultural base - good soil and available water - is limited. Climate change is compounding the problem with extended droughts. The necessary infrastructure, especially irrigation and farm-to-market roads, is lacking.

The awful irony is that this population increase is a result of rapid success in tackling basic health. Health projects (e.g. malaria net distribution) impact rapidly, whereas investments in agricultural productivity take many seasons to show their results. A recent assessment of agriculture in Tanzania conducted by FoodWorks shows that every aspect of the sector and the value chain needs to be tackled. But donors are increasingly reluctant to do so because of the difficulty of producing the easy to understand "success stories" so beloved of desk bound bureaucrats.

We believe that part of the answer will come from the private sector. Already large sovereign wealth funds and other commercial investors e.g. in the Gulf Arab States (the GCC) have begun to invest in agriculture to secure their own food supplies. FoodWorks has a number of plans afoot to help with this process. Equally, the large multi-national agribusiness companies need to be encouraged to make their products and R&D available to partners in the emerging but at-risk economies. USAID already has programs like its Global Development Alliance (GDA) in place and these kind of prgrams, combined with so-called "corporate social responsibility" (CSR) programs can lead to worthwhile public-private partnerships (PPP).

But there will not be any simple answer - and that's what confuses the bureaucrats. They don't understand that agriculture and agribusiness is possibly the most complicated human activity there is. It climate and biology-driven and includes elements of science, technology but also every angle of business, finance and marketing that can be imagined. Grow a crop, increase yields by all means, but if you can't ensure its quality and traceability (origin), store it, move it, package it and ensure that it's safe to eat and do that profitably, then the basic agronomy fails.

FoodWorks and its partners have over 40 years of experience in every aspect of this astonishingly complex activity. We want to be part of the solution. And a solution is urgently needed.

For more information click the link to: Project Partners

Or contact Geoff Quartermaine Bastin directly by email at foodworks@quartermainesworld.com

Chart: UN FAO

EAST AFRICA - TANZANIA - SMALLHOLDER LIVELIHOOD DEVELOPMENT

Geoff Q-B has been working in East Africa, in Tanzania and Kenya looking at development possibilities funded by USAID. Part of this work has been to prepare a full Agricultural Assessment of Tanzania that covers every sub-sector and provides guidance for where development funds are likely to go.

Geoff also undertook a trip by road from Nairobi across the international border at Namanga and then past Mounts Meera and Kilimanjaro to Arusha which is the centre of agribusiness in the North of Tanzania. Here's an excerpt from his report:

"The outward trip from Nairobi took 6 hours leaving at 12 noon in a rented Toyota Hilux. The road is adequate. Probably 60 percent completed on both sides of the border, where the Chinese contractors have done their work there is a reasonable two-lane road. Not being a roads engineer I hesitate to pass judgement, but I suspect the overall standard of work is not high; in some place the hard shoulder had already subsided and for much of the new road the drainage seemed inadequate. In the places where the work is on-going, we drove on compacted dirt roads which have not been well maintained either in Tanzania or Kenya (indeed there is no discernible difference between the road – which is the main North-South Highway- in either country). A 4X4 is necessary and I would recommend a slightly more comfortable vehicle than a Hilux.

The border crossing point at Namanga took 2 hours to negotiate on the outward journey. This was due to exit paperwork for the car being processed. Visas were very easy and I was not charged either by Tanzania or Kenya for the entry stamps. The return crossing took less than one hour (because the vehicle was from Kenya)."

Once at Arusha, Geoff met up with Dominick Ringo , Director, Research, Community and Organisational Development Associates (RECODA).

Dominick and Geoff visited one of the smallhoders that RECODA is supporting with funds from the Danish Rockwool Foundation. This farmer (see photo) is one of a local group of 35 farmers that have adopted a model farm approach developed by RECODA. The approximate project fund is $450,000 and the total number of beneficiaries in the project is 400 ($1,125 per farm family). After stakeholder consultations including the district authorities, the project provides a ‘shopping list” of different crops and crop mixes for choice by the farmer. The project provides technical advice, parent livestock (goats and chickens) and seedling (mainly banana). No other subsidies are provided, however the project works closely with the beneficiary on implementation and disseminates the lessons learned throughout the community.

Here's what Geoff reported:

"I was very impressed by the approach (which RECODA is in process of evaluating formally and providing written information about). Of course the farm I was taken to see could have been unique, but I did not form this impression, in any event Dominick Ringo said he could provide all the basic data I needed if I wished to check. The farmer (and his wife) was clearly delighted with the project that had helped them develop a one hectare commercial banana plantation. In addition they grew cassava and had chickens and goats."

Clearly some development projects do work and not necessarily with the huge amounts of money that the major donors seem to require. Well done RECODA!

Note: this assignment was undertaken on behalf of International Relief & Development (IRD)

PAKISTAN - FLOOD RECOVERY

Muzzafarghar, South Punjab - the photo may not look much, but closer examination will show the extent of the damage done by recent floods in Pakistan, particularly in this area which is at the confluence of the Indus and Chenab Rivers. In the foreground is a field of what was cotton, completely destroyed with a huge impact on Pakistan's textile sector that depends on local supplies. Further back, one can see a mango orchard that has been waterlogged, severely damaging the roots; next year's harvest is expected to be low and many trees themselves have died. All the other crops in this areas, including rice and maize have been lost. Many livestock have died or are starving because fodder crops have vanished and there is a shortage of milk.

GQB is in the flood affected area helping a client plan an agricultural recovery and reconstruction project. There is a critical need to immediately intervene with land reclamation, reconstruction of water ways (ironically lack of irrigation because the flood destroyed tertiary canals is likely to be a problem) and the provision of seeds for planting the Rabi (winter) wheat crop. The project, budgeted at $50 million for USAID, will provide a cash-for-work component that will immediately inject liquidity into the local economy and start repairing the damage. A voucher-based distribution of seeds, fertilizers and hand tools will give the farmers the basics of what they need to get going again. The project will cover 12 of the worst-affected districts in lower Punjab and in Sindh which remains inundated. Unless action is taken very soon, what was a natural disaster will turn into a very human one, with food shortages added to the misery of an estimated 20 million people in these areas.

AFGHANISTAN - KANDAHAR DEVELOPMENT

GQB has been working with USAID and the British Royal Air Force Regiment (a special force protection unit) around Kandahar Airfield (KAF) in the south of Afghanistan. The aim of the project is to develop a supply of fresh fruit and vegetables from the area surrounding this major ISAF-NATO base and at the same time influence the farmers away from the Taliban by providing inputs, cleaning irrigation ditches and generally helping with the development of the area.

The photo is taken at the Tarnak Agricultural Research station that before 2002 was a location for Al Qaeda - allegedly Usama Bin Laden had a house here. Now its an intensively and commercially farmed area with watermelons (shown growing here) and grapes. The area also grows a range of other fruits and veggies and is ripe for further development, both for the 30,000 people on KAF, the local market and export.

AFGHANISTAN - POMEGRANATE DEVELOPMENT

Pomegranates are the main tree crop in the Arghandab Valley just west of Kandahar City in the South of Afghanistan. KC is the focus of a coming surge to try and strangle the Taliban and the AVIPA+ project (managed by International Relief & Development with whom Geoff Q-B and Eddie Vernon are working at present) has made a real effort to help farmers by planting new saplings in an effort to rehabilitate plantations and increase earnings. The project has operated in three phases, first with a cash-for-work scheme to prune the existing trees, then by replanting with pomegranates, plums and apricots, and then undertaking an IPM program. What's expected is a huge surge in yields and output, so AVIPA+ hopes to help with the construction of packing houses and upgrading the marketing chain. The hoped for result is a calming of the insurgency because happy farmers are less likely to support the radical opposition.

Photo: Andy Burridge