Importance and Problems of Agri food Systems

The agribusiness sector plays a significant function in most developing states as it represents a support for the bulk of the rural population and besides contributes significantly to the overall economic system. In recent old ages, the rural population histories for about 47 per centum of the entire population in developing states, and the bulk of the rural people are engaged in agricultural activities ( FAO, 2008 ) . Therefore, agribusiness can be considered as a key sector in the economic development of developing states in position of its linkages with other sectors of the economic system, which permits the flow of merchandises and resources in and out of the sector ( Blandon, 2006 ) . Agricultural merchandises are used for local ingestion every bit good as for export, stand foring important foreign net incomes for developing states. Likewise, agribusiness consumes industrial inputs such as seeds, pesticides, fertilisers, machinery, and irrigation equipments, furthering in this mode the development of other sectors of the economic system ( Blandon, 2006 ; Stevens and Jabara, 1988 ; Hellin and Higman, 2003 ) .

Farmers in developed and developing states have traditionally faced jobs associated with the low profitableness of agricultural activities ( Reardon and Barrett, 2000 ; Levins, 2002 ; Blandon, 2006 ; Saxowsky and Duncan, 1998 ) . Blandon ( 2006 ) pointed out that one of the grounds for husbandmans ‘ low profitableness is that they normally operate in ‘perfectly competitory ‘ markets ( e.g. , traditional unfastened markets ) . The chief features of these markets are the presence of many purchasers and Sellerss every bit good as the production of homogeneous merchandises ( Doll and Orazem, 1984 ; Saxowsky and Duncan, 1998 ) . These two conditions result in the incapacity of husbandmans to act upon market monetary values that allow them to do higher net incomes. Conversely, when husbandmans purchase inputs, normally on an single footing, they can non exercise any bargaining power on market monetary values ( Doll and Orazem, 1984 ) .

Consequently, market minutess made by husbandmans are normally characterized by low monetary values for farm merchandises and high monetary values for goods consumed by husbandmans ( IFAD, 2003 ) . In instance of developed states, different authorities policies have been tried to work out the farm income job without supplying a permanent solution ( Levins, 2002 ) ; nevertheless, husbandmans in developing states, particularly little husbandmans, have non enjoyed similar authorities attending ( Hellin and Higman, 2003 ) . In add-on to the long-standing job of low monetary values and net incomes faced by husbandmans, agri-food systems are undergoing profound alterations, necessitating institutional version ( Onumah et al. , 2007 ; Hobbs, 2004 ) . Whilst these alterations can convey chances, it can besides convey challenges ( Saxowsky and Duncan, 1998 ) particularly for small-sacle manufacturers ( Reardon and Barrett, 2000 ) . Agricultural minutess that were traditionally made through topographic point markets are now progressively channelled through vertically-coordinated markets, which impose new demands on husbandmans and alter traditional selling relationships ( Saxowsky and Duncan, 1998 ; Reardon and Barrett, 2000 ; Peterson et al. , 2001 ) .

3.2 Factors Driving Change in Agricultural Markets

Agricultural selling systems in both developed and developing states have changed and will go on to alter. The chief drive factors behind the alterations in agri-food selling systems include agro-industrialization, globalization and multinationalisation, alteration in engineering, trade liberalization, consumer demands and turning influence of supermarket ironss ( see Onumah et Al, 2007 ; Blandon, 2006 ; Brown, 2005 ; Reardon et al. , 2004 ; Bill, 2003 ; Bill and Fox, 2004 ) .These chief factors are summarised as follow.

3.2.1 Agro-industrialization

The agri-food concern sectors have quickly been globalising and industrializing ( Cook et al. , 2001 ) . Boehlje ( 1996 ) defines agricultural industrialisation as “ the application of modern industrial fabrication, production, procurance, distribution, and coordination constructs to the nutrient and industrial merchandise concatenation ” . Reardon and Barrett ( 2000 ) besides pointed out that agro-industrialization is associated with: 1 ) alterations in agro-processing and distribution of inputs and merchandises ; 2 ) alterations in the institutional and organisational relationship between house and farms, ensuing in increased perpendicular coordination ; and 3 ) alterations in merchandise composing, engineering and market constructions. In add-on, Saxowsky and Duncan ( 1998 ) defines agro-industrialization as the acceptance of “ concern schemes to switch farm concerns off from perfect competition ” through a assortment of concern agreements in the agri-food systems.

The agro-industrialization procedure involves important alterations in organisational and selling direction and administration constructions of the agri-food systems ( Cook et al. , 2001 ) . Consequently, with agro-industrialization, purchasers and retail merchants demand merchandises with specific features coming from dependable providers that guarantee quality, measure, bringing, frequence and timing ( Blandon, 2006 ) . Increased specificity of green goods demands set by purchasers makes topographic point market an inappropriate supply beginning. This is promoting in footings of contractual relationships between husbandmans and retail merchants ( Boehlje, 1996 ; Reardon and Berdegue , 2002 ; Nadvi and Waltring, 2004 ) . Harmonizing to Reardon and Barrett ( 2000 ) the gait at which agro-industrialization has taken in America, Europe and Southeast Asia. This tendency is now evident in Africa and South Asia.

2.3.2 Globalization and Multinationalization

Collier ( 1997 ) defines globalisation as the procedure of integrating in merchandise markets and fiscal markets in which investors and manufacturers progressively behave as if the planetary economic system consists of a individual production and market country instead than a set of national economic systems linked by investing and trade flows.

Globalization has led to the consolidation of transnational companies. The high concentration of agri-food retail merchants in the United States ( US ) and the European Union ( EU ) has altered the construction of nutrient selling systems ( Blandon, 2006 ) . The current revolution taking topographic point in an progressively of import function of the transnational corporations, doing the graduated table and impact of globalisation much greater than it was antecedently ( Onumah et al. , 2007 ) .

Globalization and multinationalization are holding impacts on the construction of agri-food systems. These have been characterized by the increased flow of Foreign Direct Investments ( FDI ) , capital and information, exchange of engineering and planetary economic integrating, easing the procedure of agricultural industrialisation and accordingly perpendicular integrating of agri-food systems ( Blandon, 2006 ; Abbot et al. , 2002 ; Reardon and Barrett, 2000 ; Pinstrup-Andersen, 2002 ) .

Buying power Hs going progressively concentrated in the custodies of a few transnational companies and international market ironss ( Onumah et al. , 2007 ) . Onumah et Al. ( 2007 ) pointed out that this has weakenedthe dickering power of manufacturers, particularly small-scale husbandmans, in both developed and developing states. At the same clip, big and incorporate agriculture houses have progressively been inching out small-scale farms who find themselves in a more hard state of affairs to finish the demands.

These can be characterized as consecutive oligopolies, impacting the horizontal and perpendicular dimensions of agri-food systems ( Sheldon and McCorriston, 2003 ) . Reardon et Al. ( 2004 ) demo how the concentration of agri-food retail merchants in the fresh fruit and vegetable sector has impacted traditional selling systems in Latin America and South East Asia, traveling from traditional markets to vertically-integrated markets through contractual agreements between purchasers and little manufacturers.

These factors have strengthened the competitory advantage enjoyed by the planetary and transnational participants, a state of affairs which is common, particularly in agri-food modern trade markets in developing states ( see e.g. Reardon et Al, 2004 ; Reardon et al. , 2005 ; Reardon 2004 ; Minten et al. , 2005 ; Humphrey, 2007 ; Onumah et Al, 2007 ) .

Market liberalization has besides shifted hazard along the selling concatenation towards manufacturers ( Onumah et al. , 2007 ) . For case, the hazard of contract default has increased and, hence, trade goods are progressively sold for prompt payment. Access to inputs ( e.g. seeds, chemicals and fertilizers ) has frequently become more hard as input distribution has passed from the populace to the private sector and subsidies have been reduced or ended ( Ibid ) . This has invariably raised monetary values and the deficiency of affordability has either constrained use or efficaciously reduced manufacturer borders, particularly for small-scale husbandmans.

2.3.3 Changes in Technology

Rapid technological progresss are besides doing alterations in agri-food systems ( Blandon, 2006 ) . Progresss in production, procurance logistics, stock list, and information engineerings alter the result of bring forthing trade goods and their distribution along the supply concatenation ( see Onumah et al. , 2007 ; Blandon, 2006 ) .

The usage of up-to-date engineerings tends to increase end products and the resulting addition in supply tends to cut down monetary values ( Saxowsky and Duncan, 1998 ) . Hence, this is the thrust for husbandmans to bring forth differentiated merchandises or to increase value of their trade goods through modern supply ironss ( Reardon and Barrett, 2000 ) . In add-on, farther progresss in communicating allow the coordination and direction of concerns and ease the relationships between small-scale husbandmans and retail merchants ( Saxowsky and Duncan, 1998 and Global Commerce Initiative ( GCI ) . 2006 ) .

Therefore, technological betterments can convey about competition among manufacturers and retail merchants, every bit good as the chances to those that are able to alter ( Blandon, 2006 ) .

Furthermore, technological alterations besides include betterments in transit and biotechnology which can heighten productiveness and contribute to lower dealing costs along the supply ironss ( Reardon and Barrett, 2000 ) .

2.3.4 Trade Liberalization and Policies

The increasing publicity of trade liberalisation understandings has an impact on trade in agricultural and planetary agri-food systems ( Reardon and Barrett, 2000 ; Onumah et al. , 2007 ) through the General Agreement of Trade and Tariffs ( GATT ) , the World Trade Organization ( WTO ) , and Free Trade Agreement ( FTA ) .

Structural accommodation plans frequently promoted by International Monetary Fund ( IMF ) and World Bank, every bit good as givers such as the US Agency for International Development ( USAID ) in most developing states to promote alterations in pecuniary policies, remotion of duty and non-tariff barriers to merchandise, remotion of foreign direct investing limitations and decrease of authorities engagement in agri-food selling and trade ( Blandon, 2006 ) .

These alterations are seen as necessary stairss towards the integrating of goods and capital markets around the universe ( Abbot et al. , 2002 ; Reardon and Barrett, 2000 ) . The recent development of trade liberalisation will surely increase the trade flows between the parts that offermarket chances to local manufacturers, whilstincrease competition as manufacturers besides launch their merchandises to the part ( Blandon, 2006 ) . Marketing liberalisation is besides given that smallholders struggled to vie in a liberalised selling in modern trade ironss.

2.3.5 Consumer demands and turning influence of supermarket ironss

In recent old ages, a major concern of new agri-food selling systems is the stricter and more dynamic consumer demands ( Blandon, 2006 ) . Increases in income, urbanisation, altering life styles and decreases in clip available for cooking are impacting on nutrient selling systems and driving people to look for more convenient options when purchasing nutrient merchandises. As incomes addition, consumers tend to switch from staple nutrients to non-staples and increase their demand for high quality, nutrient safety and a figure of other shopping standards ( see e.g. Reardon and Barrett, 2000 ; Blandon, 2006 ; U.N. Economic and Social Council, 2000 ; IFPRI, 1996 ) . It is noted that this development is non limited to the developed states but is besides a turning phenomenon in Asiatic states such as India, China and Thailand.

This tendency has stimulated alterations in the supply side of agri-food markets, as shown by the proliferation of modern trade ironss ( particularly for supermarket ironss ) . In bend, this has impacted the traditional production and marketing systems of their ain providers, including manufacturers of agri-food merchandises ( Reardon and Berdegue , 2002 ; Reardon et al. , 2004 ; Reardon et al. , 2001 ; Hobbs, 2004 ; Nadvi and Waltring, 2004 ) .

Even though some consumers may still prefer traditional markets that guarantee more personal and traditional relationships ( Estrada, 2004 ; Schwentesius and Gomez, 2002 ) , traditional markets face the high force per unit area of modern trade markets ( particularly supermarkets ) economic power and invention capacity in seeking to capture this market section ( e.g. , by opening new and/or smaller theoretical account of supermarket ironss such as Tesco Express theoretical account ) .

New consumer demands include turning consumer power and concerns about issues such as nutrient safety, planetary heating, every bit good as just and ethical trade footings. These are reflected through classs and criterions every bit good as enfranchisement labels which besides create new market sections and enforce new restraints on conventional markets ( see Blandon, 2006 ; Onumah et al. , 2007 ) . On the one manus, these tendencies have besides given rise to the outgrowth of new markets for manufacturers, such as fair/ethical trade markets and organic/chemical-safe green goods markets ( Onumah et al. , 2007 ) .

Therefore, the challenge of new agri-food systems is to provide safe and low monetary value nutrient merchandises produced under environment-friendly conditions ( Pinstrup-Andersen, 2002 ; Vanit-Annunchai, 2006 ) . This rapid growing in market portion of supermarket ironss represent an chance for small-scale manufacturers of comparatively higher value nutrient merchandises, peculiarly if they are able to purely follow with the nutrient safety and quality criterions every bit good as supply agendas.

However, this means that small-scale husbandmans must follow new production engineerings and direction accomplishments. For case, the production of organic and chemical-safe merchandises ( e.g. , rice, fruits and veggies ) for small-scale husbandmans has been seen as an chance to make modern trade markets and obtain premium monetary values. However, the enfranchisement procedure and supply concatenation direction can be a serious obstruction for small-scale husbandmans particularly in developing states ( Hellin and Higman, 2003 ; Vanit-Annunchai, 2006 ; Onumah et al. , 2007 ; Reardon et Al. ) .

The chief factors driving alteration in agri-food selling systems are summarised in Table 3.xx