Climate Change and Developing Country Food Supply Chains Tom Reardon and David Zilberman ICABR, May 31, 2017

1. Debate on climate on the food sector Has focused on farm sector impacts Impacts on food supply chains relatively neglected That neglect would be OK if situation was 20-30 years ago … farms mainly subsistence … food security issue main rural (little urbanization)

2. Transformation of the agrifood system in developing countries But agrifood systems have deeply changed in the past 2 decades Urban market now the majority of food in developing countries Rural households buy the majority of their food Grains only a third of diets Supermarkets and large processors important Trade has grown a lot 60% of food costs are from post-farmgate in the supply chain  Food supply chains now massively important to rural households and national food security

3. Climate impacts on supply chains literature is limited in scope Current (scant) literature takes passive, “engineering” approach: resilience post farm gate By contrast, we argue should take an “active” “business strategy” approach: … business strategies of procurement and marketing increasingly determine supply chain design … and business decisions will heavily influence how climate impacts farmers and the food system … decisions from where, from whom, how to source

4. Climate shock on supply chains: scenario Short term shocks (floods) Long term heat and drought or humidity increase Long term increase in risk/variability

5. Impact on food Buying firms’ side (or input suppliers side) Effect on buyers mediated by their incentives and capacities 5.1. Incentives Reduce costs and risks: overall objective Longer supply chain, more vulnerable More quality/consistency demanding, more vulnerable  Paradox: bigger & more modern more vulnerable and have more incentive to find supply chain solution when supply zones are climate-shocked

5.2. The capacity side: Diversified in zone sources already (examples, grain firms, citrus companies) Access to modern logistics segment to help rapid adjustment (follow sourcing, Brazil) Capable of resource provision contracts with farmers or intermediaries (Chile example) Capable of direct supply zone and supply chain investments to mitigate shock or change (again, Thailand CP example)

5.3. Upshot is amplification of concentration trends in agribusiness and food industry … with the paradox that the modern firms are more vulnerable but have greater capacity to adjust procurement systems geographically and technologically

6. Impacts on farmers (supply side) Farmers hit by double vulnerability: … to agriculture … to supply chains to and from farmers (transaction costs, “strand zone”) b) Double need for adaptability … for agriculture technology & crop composition to adapt … but also still meet quality/consistency/volume demanded by supply chains

c) Buyer (or input supplier) has already diversified over zones to manage cost and “shorts” risk … but still needs minimum volume and quality … so faces a choice of where and from whom to source .. And how

d) Buyer faces three types of zones (and farmer asset groups within zones) … low vulnerability (to climate change) zone … high vulnerability but high adaptability … high vulnerability but low adaptability e) Note that zone vulnerability and adaptability area both double sense: … on-farm … post-farmgate

f) Buyer who wants to maximize profit and minimize risk has these options:  resolve asset failure or idiosyncratic market failure of zone (Rabobank/Indonesia & CP/Thailand examples)  abandon the vulnerable/risky or non-adaptable zone/farms

g) Upshot is double impact on poor zones/farms … poor zone gets poorer … amplifies concentration in the farm sector (“Piketty” effect)  supply chain context magnify impacts on farms of climate change

7. Conclusions Supply chain perspective on climate impacts: Predicts amplified impact on most vulnerable zones Analyzes business strategies to adapt supply chains Of which one option is to increase the vulnerability of hinterland zones With acceleration of concentration on demand and supply sides