Lately I have been doing some thinking about the significance
of the term “value chain.” It is not
uncommon to be asked what a value chain actually is once we start to talk with
people about the Philippine Cold Chain Project.
Explaining a cold chain is a little less complex since the cold chain
technically starts when a harvested perishable commodity starts on its path to
a market and ends when the consumer takes this product from their refrigerator
and eats it.
Often when reading about a value chain, the process is
depicted as a series of activities which are listed in boxes linked by arrows
going neatly in order from one box to the next in a rather linear fashion. Most of the time the value chain looks like
one single chain made up of individual links.
In some cases, there are weak links in the chain that can be identified
and fixed, thus improving the value chain.
After being immersed in looking at value chain and cold chain
improvements in several countries with many different products, I have come to
the conclusion that this simplistic depiction is way off the mark. In fact, it might be better named as a
production and marketing matrix rather than a value chain. This matrix is most probably best depicted in
three dimensions as well. Unfortunately
my computer graphics capabilities are not up to the task of diagraming what I
can see clearly in my head when it comes to this matrix.
The first consideration one has to approach in looking at
this issue is the size and scope of the enterprises involved. The production and marketing issues when
dealing with MSME or micro, small and medium enterprises are very much
different than those that a large enterprise has to consider.
A large enterprise, by having resources available, develops
efficiencies of production, processing and marketing that are either
unavailable or very hard to attain for a MSME enterprise. Let me give an example: here in the Caraga
region, it is easy to see triple deck trucks that are transporting live hogs
from Davao and points south of here to Samar and Leyte. These trucks can easily hold 150 market ready
hogs or more. These pigs are produced
under a large industry template where production is no longer “farming” but
agroindustry.
The large scale of production means that the production
cycles can be tied to market demand estimations and almost all of the
individual links in the value chain can be simplified through controls and
processes along each step. The agro-industrial
swine complex controls its own budgets, genetics, has its own feed mills and
formulations, has biosecurity in place, has its own health programs and
computerized record keeping, has its own transportation fleet to call on when
needed, has no need for government or NGO support and actively engages in
aggressive planning so that the product that is grown under this system is
marketed when profit is optimal. Like
Tyson Foods in Arkansas, this agro-industrial enterprise might also engage in
slaughter and processing of the product that it produces in order to capture
more of the potential profits from the agro-industrial enterprise. In point of fact, big agribusiness seeks ways
to shorten and simplify the production to plate “chain” as simple economic
analysis shows that the less steps involved, the more potential there is for
profit. The industrial producer wants to
control all the steps and build up safeguards that help to keep the production
processes profitable.
Pity then the MSME “farmer” looking to break into a
market. The small farmer, because he
cannot compete with the agro industry producer, has to look for innovative ways
to market his product at a profit. In
this case, the value chain becomes a complex matrix with many more pathways to
failure. The small farmer must figure
out ways to have quality, volume and regularity of product to assure buyers and
market makers of regular supply. A
farmer cannot work alone but must work with others who have similar problems…so
clustering becomes necessary. In the
USA, Winrock works with the development of food hubs for local farmers so their
production can be aggregated and standardized.
The idea for swine producers is much the same. There is a need for these clusters to locate
a good market, and then plan the cluster production around a marketing schedule
that will provide regular, quality supply of pigs at an acceptable price. In order to do this there are many
considerations and pitfalls. Good genetics
must be a consideration, regular supply of piglets is important, good quality
feed must be available and the farmer must also have access to credit. Middle men must be cut out and ways to
minimize transportation costs to markets while keeping prices high enough for
profitability must be found.
Assistance from government and NGOs are needed for training
and marketing development. Also the
cluster group has to think about how it can improve and strengthen its group,
not only through better “hardware” but through improved “software” as
well. Thinks like feed, water, shelter,
veterinary medicines, good genetics and credit are all important hardware… but
none of these things matter if the software or sociological aspects of the
matrix are not in order. This means the
group must be well led, everyone needs to keep good records, work for the group
must be shared equitably and volume, regularity and quality as well as branding
must be in the forefront of the cluster activities. A group cannot avail of a good market unless
the group and especially the leadership of the group and every member of that
group is thinking about what is needed to assure marketing factors for the
group are favorable.
In the case of the Philippine Cold Chain Project, we have found
that we overestimated the strengths of existing producer groups, underestimated
the complexity involved in breaking into markets that are profitable. Much more work than we estimated at the start
has been required to build groups or clusters up to the point where they can
begin to be profitable marketers of their own products. There are individuals who are members of
groups that do a good job at this but few MSME farmer groups that are able to
show a marketing track record that works for the group. Certainly any effort in this regard is
complicated by a group having to work on consensus rather than working like a
business where command and control structures are the norm and decisions can be
made by mandate.
We have solved the problem of credit availability. We have dealt with the problem of poor
genetics and have made great improvements.
We are improving slaughter facilities in part to help improve local
market options and we are working with big food companies in order to see if
they can develop new marketing options for pork products that might create a
new market for local MSME farmer producers.
All these take time, focus, energy, and consistent effort -- while the
producer remains stuck in the middle raising pigs for a sometimes less than
break-even price, while the agro-industrial farms continue to make money for
their owners. Four years is not enough
time to figure out and fix this matrix to enable the MSME farmer to regularly
have some profit in his or her pocket at the end of the day. It is worth the struggle but I’m afraid that
if there is not a big change made to support, prioritize and even subsidize
MSME farmer marketing efforts, the agro-industrial agriculture model will win
this battle and the MSME pig farmer will have to move away from the farm and
find a job in the city.
