1. Value Chains and the Bioeconomy Johan Swinnen Ravello ICABR, June 2016

2. Key Question Will modern value chains and new “quality standards” in the bioeconomy marginalize poor countries and small farmers who cannot satisfy the requirements ?

3. Theory should explicitly account for the endogenous (!) institutional organization of the value chains This yields complex/nuanced predictions Empirical studies confirm such complex & heterogenous outcomes

4. Key points 1.Value chains can contribute importantly to technology transfer and farm integration with market imperfections 2.Structure of the value chain is endogenous –to market imperfections –to enforcement institutions –to nature of the commodity –to nature of the technology 3.Enforcement problems are important 4. Supply structure is influenced –by standards/requirements –by resource environment (land availability) –initial production structure

5. A simple value chain model Input/Technology Company Farmer Processor Consumer PRODUCT (Processed) Finance PRODUCT (Technology & Inputs) PRODUCT (Raw Material)

6. Finance, market imperfections and value chains Nature of the different markets in the value chain will be different because of the nature of the production process and financial requirements –INPUTS (technology @ farm level / raw material @ processor level) needs to be supplied at the start of the production process –Payments for OUTPUT comes at the end of the production process => Finance is crucial to bridge the gap between the two. This difference is stronger when –Access to finance (loans/own liquidity) is more difficult for different agents along the value chain –Duration of production processes vary

7. Value chain innovation 1 Technology Company Farmer Processor Consumer Processed product Finance TECHNOLOGY Raw Material

8. Value chain innovation 2 Technology Company Farmer Processor Consumer Processed product Finance TECHNOLOGY Finance Raw Material

9. Value chain innovation 3 Technology Company Farmer Processor Consumer Processed product Finance TECHNOLOGY Raw Material Joint Company Finance

10. A F G K J Homogeneous (China, Poland, Mada) H N D B C E Initial Production Structure & Integration of Smallholders in Value Chains (Similar for Distribution of Land) D E MODERN VALUE CHANS G A C 0 F B H H G ALL Producers Heterogenous (Slovakia, Senegal) Homogeneous (China, Poland, Mada) TRADITIONAL VALUE CHANS MIX Producers “LARGE” Producers Homog Heterog Income “Modern VC”

11. LICOS/WB Value Chain Studies 1995-2015

12. Empirical VC Studies Eastern Europe after 1990: –Sugar @ large farms (dynamic effects) –Dairy @ small farms (dynamic effects) Africa since 2000: –Biofuels @ small farms (static effects) –Horticulture @ small & large farms (static & dynamic effects) [India: dairy – panel data collection]

13. VC Effects in Slovakia – Sugar 1990s (Juhocukor & Co) Production Yields & Sugar Content Start VC Start VC-Finance Contracted Area

14. Dairy in Eastern Europe 1995-2005 Dairy processor provides loan guarantees for bank loans to contracted suppliers Dairy Processor Bank Farm Loan Loan Guarantee Milk

15. VC Contracting & Small farm investments (farm cooling equipment in Poland)

16. VC LOANS and INVESTMENTS of SMALL FARMS in Polish Dairy sector

17. Dairy in Bulgaria, Slovakia, Poland

18. Quality & Size distribution Dairy farmers in Bulgaria (2003-09)

19. 19 VC Biodiesel (Castor) in Ethiopia nursery  seed collection  pealing  oil pressing  refining  oil export/use

20. Contracted farmers are small and poor Contract includes seeds and fertilizer and farm management assistance Significant adoption rates (contrasts with low rates of traditional technology adoption programs) Penetration of the castor contracts into inaccessible and remote places 20 Castor Contracting with Farmers - Ethiopa

21. Castor VC Impact on Smallholders Strong impact on food security –HH income and food consumption significantly higher –Food gap is 50% smaller (30 vs 47 days) Fertilizer use is 70% higher, affecting both castor and food crop productivity –food crop productivity is 35%-52% higher on plots intercropped with castor

22. Horticult. Exports from LDCs Standards & Horticultural VC Growth

23. Africa Horticultural Exports Comparative Analysis: 3 Cases Small- holders Industry structure High value exports to EU Madagascar green beans 100% contract Monopolyyes Senegal green beans Mixed & changing Competitionyes Senegal cherry tomatoes 0%Monopolyyes

24. 1. High standard F&V exports from Madagascar to the EU Rapid growth –100 farmers in 1990 –10,000 small farmers on contract in 2005

25. Why do farmers contract in value chains ? Sub Sahara Africa -- Horticultural Exports Source: Maertens et al., 2009; Minten et al., 2009 Reasons for contracting (%) MadagascarSenegal 20042005 Stable income6630 Stable prices1945 Higher income1715 Higher prices11 Guaranteed sales66 Access to inputs & credit6063 Access to new technologies5517 Income during the lean period7237

26. 1. High standard F&V exports from Madagascar to the EU Rapid growth –100 farmers in 1990 –10,000 small farmers on contract in 2005 Major technology (fertilizer) adoption effects Important productivity spillovers –Rice productivity increased by 70% –Length of lean periods falls by 2.5 months -(with contract: 1.7; without contract: 4.3 months) => huge implications for food security (and biodiversity !)

27. 2. Green Bean Exports in Senegal % household participation in region

28. 2. Green Bean VCs in Senegal % household participation in region Income Effects

29. 3. Vertical Integration Worst Case Scenario ? Tomato export chain in Senegal 1.Very stringent standards 2.Poor country 3.Complete exclusion of smallholders 4.Extreme VC consolidation 5.Foreign owned multinational

30. Poverty Reduction in Senegal River Delta Percentage of poor households Percentage of extremely poor households

31. Standards, Value Chain Employment & Incomes of Poor Worst Case Scenario ? Strong employment growth: 40% of households in the region employed HH incomes double: strong income and anti-poverty effects

32. Income impact of wage employment on large VC farms

33. Gender Effects

34. Key Points -- Summary 1.Value chains can contribute importantly to technology transfer and farm integration with market imperfections 2.Structure of the value chain is endogenous –to market imperfections –to enforcement institutions –to nature of the commodity –to nature of the technology 3.Enforcement problems are important 4. Supply structure is influenced –by standards/requirements –by resource environment (land availability) –initial production structure