Producers organizations in business: Trends and challenges Roldan Muradian Agriterra / Center for International Development Studies (CIDIN). Radboud University Nijmegen Note: This is not an institutional presentation. Therefore, the statements presented do not necessarily reflect Agriterras institutional vision

Outline of the presentation 1. Global trends in the agri-business sector. Implications for small- scale farmers 2. What is the role of producers organizations in coping with the new challenges? 3. How are the development and private sectors coping? Is there hope for mainstreaming unusual business?

1. Global trends in the agri-business sector. Implications for small-holders A turning point, due to market liberalization and rapid globalization, took place in the 1980s, setting a new stage in the transformation of the agri-food industry 1950s – 1980s; pre liberalization/ globalization stage Major role played by the state in steering rural development, allocating resources to the agricultural sectors and intervening in input provision, extension, commercialization, price setting, etc. The advocacy capacity of POs towards the state was a key element in achieving better conditions for producers Defensive approach: cooperatives are there to solve market failures (e.g. non-competitive markets)

1980s - Liberalization/globalization phase Mutinationalization: global value chains, transnational corporations as importance players Specialization/differentiation: convenience products, niche markets; quality as salient feature of products Vertical coordination: tailored business relationships Private grades and standards: certification schemes, products specifications Supermarket revolution: emergernce of superpowerful supermarkets (from spot-markets to concentrated markets) In the academic and development sectors: Emergence of the value chain thinking (a new level and logic of intervention)

Globalization of price instability, crisis and uncertainty Short worldwide boom and bust cycles in the agricultural sector A new phenomenon: Agriculture for feeding cars High inflation in input prices Food crisis, also hardy hitting small-scale producers

Implications for agricultural producers A shift in power relations along the value chain, favoring downstream agents (traders, retailers) The ability to meet private standards becomes a critical competitive tool Quality, consistency, volume and product specifications become very important elements in the transaction with buyers High degree of uncertainty in the business

To what extent will small-holders benefit? … It depends basically on Who will remain on board The conditions of participation Price / Access to technology/knowledge, inputs and credits / Risk Bargaining power and market relations

2. What is the role of producers organizations in coping with the new challenges? a. From the point of view of small producers: Collective action as a tool for meeting standards, achieving product differentiation and tailoring transactions, reducing risk, while also gaining bargaining power b. From the point of buyers: Cooperatives may hold some competitive advantages derived from lower transaction costs (particularly in sectors dominated by small-scale producers)

What are the challenges? A mindset change: From defensive measures to collective entrepreneurship Unusual business: building innovative partnerships A trade-off between entrepreneurship and inclusiveness? To face the main barriers for innovation in agricultural cooperatives in developing countries

Cafedirect: 4th U.K. coffee company US$ 47 annual sales Founded by development NGOs It grants to producers groups stock shares and representation in the company board Commit 90% of the profits to the producers-owned NGO Twin Trading (specialized in supply chain management). It has a constituency of 24 farmer cooperatives in eight countries. Example of unusual business:

3. How are the development and private sectors coping? How usual unusual business will be? Private sector Corporate social responsibility is becoming a matter of competitiveness New wave of CSR: bottom of the pyramid approach/ inclusive business. Is the private sector discovering poverty? Will the crisis lead to re-think business models? Emerging markets require new models It is not only a business but also an ethical issue: is there scope for a more human capitalism?

Development sector Pre-liberalization/globalization vision still prevalent (emphasis on advocacy/representation/empowerment/generic institutional strengthening). Entrepreneurship, in general, still a neglected issue Why is adaptation so slow? Why projects dealing with innovative partnerships and entrepreneurship still unusual?

Example of innovative models: BRAC in Bangladesh (the worlds largest NGO in one of the poorest countries, to a large extent self-funded through economic activities)

What are the main barriers for innovation in the development sector? … Basically a matter of lack of incentives Overabundance of resources (too much, too easy money?). Loose conditionality by donors Execution (expenditure) becomes a goal in itself (the tyranny of the project cycle) Partnerships need time, donors want short term execution, practitioners want the money from donors Prevalent risk-aversion attitude: business involves risk, practitioners prefer achievable goals

The future of international cooperation in the agricultural sector is about innovative business models How usual unusual business will become?... Donor policies have a major role to play … the lead is not in Europe…the drivers of change are abroad (time to learn from them)