Wednesday, July 27, 2016

What About Marketing?

With reference to the DevEx article on July 19th, 2016:

The Millenium Challenge Corp. (MCC) Philippines has agreed to go on to a Phase II in the Philippines which should be good news for the 26% of people here living under the poverty line.  It is very interesting for me to see that the MCC has focused on many of the same areas that PCCP addresses in its work.  Truth be told,  early on, I did not foresee all the pitfalls that we have since encountered in this project but certainly by now I have a very good idea of the macro problems that are facing the small scale producer here in the Philippines-and a major one involves support for marketing.
One of these problems is that along with having many disputes about who owns and controls what land, there is also the problem of land reform.  The Philippines has been engaged in land reform and trying to break up large plantations for several decades now.  The Department of Agrarian Reform (DAR) has been in charge of this effort. 

However, in general what has happened is that land reform has occurred at a snail’s pace and when land has been turned over, there has been an gross inadequacy of thought and effort devoted to how a large group of small farmers should work together to create marketing opportunities for the products that they grow.   In fact, DAR-supported farmers should have been engaged in education about marketing and farming as a business prior to receiving any land titles.  Also it is my observation that there are very few successful groups working as full-fledged cooperatives that have engaged their members in successful marketing systems, especially for perishable commodities.  On the macro scale, perishable commodities are still marketed by the few business people that have always controlled the market.  Also there are loopholes in the land reform law that make allowances for exported crops like lacatan banana…so it is still easy to see large tracts of monoculture bananas owned by corporate entities here in the Philippines that remain untouched by DAR.  Small farmers continue to be price takers and victims of middleman exploitation with little idea on how to cluster and enter into the big domestic markets.  Trying to get small farmers connected to ASEAN markets seems almost unreachable.  Also promotion of plantation crops like oil palm do little to help small farmer enterprises.  Coconut-occupied lands are somewhat more equitably owed.   In fact, if the Philippine government really wanted to help small farmers, the money that has been taken from coconut farmers under the coconut levy requirement should be used to subsidize a Philippine wide “logging” of senescent, overly tall and barely productive coconut trees planted 50 years ago or longer and then give a second subsidy for planting of improved varieties of disease resistant coconuts that will produce more nuts and give a greater profit per hectare.  Additional training could also be given on growing other crops within these areas and for value added processing and marketing of coconut and secondary crops.   It is unfortunate that the Coconut Levi funds remain tied up in litigation.
So then the question is asked: How does one reach economies of scale when trying to develop markets with the rural poor? 
I think such an effort will require a grand paradigm shift in cultural practice and values here in the Philippines. 
The individual farmer will have to clearly see the benefit of working together in groups and marketing together in groups as a way to promote greater income and stability.  This may include some cooperative owned value adding activities and certainly will need to include a lot of training for the farmers involved.  There will also probably be a need for incentives offered by government or through price structuring and support to these farmers to develop and maintain loyalty to their cluster and cooperative.  But right now, most of these small farmers and the government workers that are supposed to support marketing efforts have no idea what their market value chain consists of or what the end consumer wants or how to effectively deal with post-harvest requirements in order to tap the most lucrative markets here and abroad.  Most small farmers still are thinking “small”.  They visualize their vegetables, fish, meat, fruits etc. being sold on a blanket on the ground or on at table at a stall at the local market once a week or sold to a middle man at the farm gate.  They certainly don’t visualize their products being chilled or frozen and packed and sold in an attractive box to a large supermarket chain where it is retailed at a high price and consumed by a middle class family in Manila, Taiwan or Japan!
So yes, small farmers are desperate and disadvantaged…and acceptance of land under a land reform program may make them even more so. 
I believe this is the case mainly because status quo, large scale marketers don’t want to have the competition that educated and organized growers could bring to the market place.  They are content with offering the lowest price for class C produce and reaping the profits while continuing to drive down prices at the farm gate whenever possible.  A lack of training for DAR and DA assisted farmers in market development may only be a result of not understanding the need to understand marketing before you plant or raise or catch anything.  On the other hand, it almost reaches a level of conspiracy by those currently controlling and profiting from existing market chains since land reform “continues” while small farmer market education and reform remains ignored.
Photo Lifted from:
PCCP has worked and partnered with FICCO to address the available of agriculture loans for small farmers.  However, this is no easy task as we are plowing new ground trying to learn were and how to best promote successful agriculture based loan packages.  As a result, our current loan default rate is higher than we would like to see.  But as we learn the ins and outs of agriculture productivity, marketing and profitability in the Caraga region, we believe the number of successful loan repayments will dramatically improve.
We are also tackling the need for improved infrastructure with an expanded Carmen mango facility, a new trading hub near the Port of Nasipit, new dry and cold storage warehouse facilities in Butuan and a number of improved slaughterhouse and ice plant/storage facilities throughout the Caraga Region.
Our doors are open and we are ready to share our knowledge and experiences regarding how best to assist small farmers and what needs to be done to improve marketing opportunities for them.  PCCP would welcome a visit from MCC staff and consultants any time as we have a lot to offer regarding small farmer aid and intervention knowledge! -------------------------------------------------------------------------------------------------------------------------
Excerpt of a DevEx article on plans for MCC compact II in the Philippines…($435 million USD)
More than two decades ago the Philippines passed sweeping agricultural reform laws that limited the maximum size of farms in an effort to break up to the monopoly of large plantation owners and more equitably distribute farmland to the rural poor. An indirect consequence has been the loss of efficiency and productivity that come with larger tracts of land, where mechanized farming, for example, is incentivized.
“Without turning back the clock to pre-agrarian reform, the challenge is how to work within the law so that you can get the economies that large-scale cultivation offers,” a member of the compact team, who declined to be identified by name, told Devex.
Rural agriculture is also hampered by limited access to finance, which affects smallholder farmers around the world. In the Philippines, commercial banks are required to allocate 25 percent of their loans to the agricultural sector, 10 percent of which must specifically go to the smallholder beneficiaries of the land distribution reforms. But most banks don’t meet that threshold for smallholder lending, choosing instead to pay a regulatory fine rather than take on what they see as risky investments. 
On the demand side, few Philippine farmers have direct access to the modern food and retail industry, selling either to local markets or at low prices to traders who sell to large companies.
“It is an informal collector’s model where farmers are desperate and will sell to any middle man,” said Jenny Costelloe, director of country partnerships for Grow Asia, a multistakeholder platform for sustainable agriculture in Southeast Asia. “It’s the complete opposite end of empowerment.”
The compact development team is considering a number of projects including various interventions to improve many of these market inefficiencies, including farmer training and extension services, improved access to credit and better market access.
Also needed, the team said, are better and more transparent information services that improve the business of agricultural — digital and data platforms, for example, that provide farmers with real-time information on commodity production, crop pricing and land availability.
The compact team is also considering dedicating a large portion of funds to large-scale infrastructure projects that would improve physical transport and market connectivity. One potential project is port upgrades in the Visayas region — a heavy clustering of island provinces in the central Philippines whose local economies rely mainly on agriculture.
Ultimately, the compact development team is aiming for aid and interventions in agriculture that feed into other strategic industries.