By Sara Gustafson
Rapid urbanization, increasing incomes, and changing consumer preferences are driving massive modernization of food value chains across the developing world. To keep pace with the transformation, policymakers and researchers need a better understanding of the implications of these changes for both producers and consumers, as well as for economies and the environment. A recent webinar on Strengthening Food Value Chains[SG1] , co-hosted by the CGIAR Research Program on Policies, Institutions and Markets and the Food Security Portal, examined recent CGIAR research on food value chains in three regions.
The presentations began with Matty Demont (Senior Scientist, IRRI), who spoke about his recent research in West Africa on efforts to upgrade domestic rice value chains to help domestic producers better compete with imported rice. Asia is the world’s leading producer of rice, but the crop is in fact also indigenous to West Africa. Despite this advantage, however, West Africa remains a major importer of rice from Asia. This reliance on imports can pose an economic and food security risk, as seen during the 2008 rice price crisis.
According to Demont, several factors play a role in determining a country’s level of investment in domestic rice value chains. In countries far from seaports (physical barrier), countries where consumers prefer local rice (cultural barrier), and countries close to supplies of domesticated rice, imported rice plays a less important role in diets. Since domestic rice already dominates in these areas, there tends to be fewer investments in improving domestic rice value chains in these countries. On the other hand, countries that rely more heavily on imported rice and thus have higher import bills have tended to invest more strongly.
“They need it more,“ Demont stated, “because they need to compete against imports.” Nigeria and Senegal have seen particularly high investments in their rice value chains.
In response to these findings, Demont’s research team encouraged policymakers to focus on enhancing productivity and value chain upgrading, educating consumers to drive demand for local rice, and fostering a policy environment supportive of private investment.
“It’s not by accident that we see that the countries that have most investments were also the ones that were able to crowd-in a lot of foreign direct investments,” Demont pointed out.
Trent Blare, Assistant Professor at the University of Florida and former Markets and Value Chain Specialist at CIMMYT, then presented his work on consumer demand for blue maize tortillas in peri-urban Mexico City. According to Blare, traditionally smallholder farmers have relied on native blue maize for subsistence purposes, but demand for native crop varieties has exploded in recent years both domestically and globally. This presents opportunities for blue maize producers and processors to enter more lucrative high-end and international markets.
Blare’s study examined whether consumers were willing to pay more for handmade blue maize tortillas than for machine-made white and handmade white tortillas, as well as what factors limited consumer access to these products. The team found that consumers were able to tell the difference between the three types of tortillas in a blind taste-test and that over 60 percent of consumers surveyed strongly preferred the blue maize variety.
To determine consumers’ willingness to pay a higher premium for the preferred blue maize tortillas, Blare’s team conducted an innovative survey in which they presented consumers with three dining scenarios: in-home daily use, in-home special occasion, and dining outside the home. According to Blare, they posited that “ . . . for in-home consumption, you probably aren’t willing to pay as much, but if it’s . . . a wedding or a baptism or a special event . . . if they want to have these special tortillas, they’re probably willing to pay somewhat more for them.”
The results supported this hypothesis, with consumers willing to pay significantly more for blue maize tortillas. Interestingly, women were willing to pay more for blue maize tortillas even for daily in-home use, suggesting that many women who have the food purchasing power in their households are concerned about nutrition and consider blue maize to be more nutritious.
Despite the clear preference for blue maize tortillas, however, Blare found that many consumers have difficulty accessing these products. Factors impacting access to blue maize tortillas included a lack of trust in the product quality, high prices, and difficulty finding or accessing places where these tortillas are sold. This final factor indicates a value chain failure that needs to be further investigated by researchers and policymakers.
“There were difficulties connecting those who wanted them with those who supplied them,” Blare summarized.
The final speaker was Tanguy Bernard, Senior Research Fellow in the Markets, Trade and Institutions Division of IFPRI and Professor at the University of Bordeaux. Bernard presented research in Senegal examining an innovative contract farming scheme to upgrade groundnut value chains by reducing aflatoxin contamination and improving groundnut quality. Evidence has shown that linking producers to export markets can raise incomes and improve livelihoods, but many smallholders struggle to meet the international quality standards required by global export markets. Contract farming can help farmers make the necessary investments in new practices and technologies in order to improve the quality of their products.
Bernard pointed out that while many contract farming schemes address one point of failure, such as farmers’ lack of credit, interventions that address multiple constraints may be more effective. With this in mind, the research team designed a scheme that bundled price premium certainty with training and input credit. The goal of the experiment was to determine whether and to what extent a bundled contract farming scheme could increase farmers’ uptake of Aflasafe, an aflatoxin bio-control technology.
The study made Aflasafe available to all surveyed farmers; however, farmers in the control group had to purchase the technology up front, while farmers in the treatment group had the option to purchase Aflasafe on credit and make a repayment after harvest. In addition, treatment group farmers were guaranteed training in the field and a price premium for any groundnuts produced that met the European Union’s quality standard, while control group farmers were simply told they would likely receive this training and premium.
The intervention had a significant impact on farmers’ uptake of Aflasafe. Bernard pointed out, “These effects are much larger than the effect of non-bundled interventions that we see in the existing literature.”
There was a smaller impact on groundnut quality upgrading, with contracted farmers on average being only 12 percentage points more likely to exceed EU quality standards. However, farmers in areas where aflatoxin contamination is more prevalent produced groundnuts that were 44 percentage points more likely to meet quality standards.
“Where there are more risks of contamination, these contracts are much more effective,” Bernard stated.
Finally, the study found that the bundled intervention had a strong positive effect on farmers’ fulfillment of their contract. This means that farmers were more likely to sell their groundnuts to the cooperatives that had provided the Aflasafe rather than renege on their contracts or engage in side-selling. This effect was particularly large for new farmers and for lead farmers.
Further research needs to be done on bundled contract schemes to fully understand their impacts, Bernard concluded. Such research should focus on what part of the contract matters more to farmers and whether a less expensive contract with fewer elements could be as effective.
The webinar wrapped up with a Q&A session and summary remarks from Frank Place, Director of PIM. According to Place, the research presented in the webinar brought to light several important factors for policymakers to consider when looking at their country’s food value chains. These included how to increase access to affordable, high-quality food; how to create food sector jobs and enhance value for farmers; and how to improve food trade balances without the use of high subsidies.