Finding the right balance in food production
The transmission channels of perishables like fruits and vegetables from producers to consumers in developing countries need a revamp to provide benefits to all involved.
Often in developing countries in Asia, producers curse themselves for not getting high enough prices for fruits and vegetables, while consumers complain about high prices, and governments struggle to strike the balance. In extreme cases, producers throw away their produce to protest low prices. To approximate the economic figures related to these agonies and identify ways to eliminate them, we conducted a study in 2019 on horticulture value chains in Bangladesh, Nepal, Pakistan and Viet Nam. The findings suggest that there is ample scope for improvement by investing in market infrastructure and agriculture logistics.
These four countries are dominated by cereal production, although fruit and vegetable production has been increasing over the years. They significantly lag behind developed countries in yields of fruits and vegetables. Per capita consumption of fruits and vegetables in these countries, compared to developed countries, is also low. Among others, an inefficient value chain which fails to transmit the products from the field to the market in full quantity and quality is also responsible for this.
One of the outcomes of the inefficient value chain is high postharvest losses. About 30% to 40% of fruits and vegetables, depending on the country, are lost either in the field or on their way to market after harvesting. Food lost means nutrition lost. This implies nutrition needs in these countries can be met significantly by reducing these losses and improving the distribution channels. The value of these losses in Bangladesh, Nepal, Pakistan and Viet Nam in 2018 are estimated at $1.88 billion, $0.68 million, $1.13 billion and $1.87 billion respectively. If this money was invested in market infrastructure and agri-logistics, it would improve the horticulture value chain significantly.
The economic burden of postharvest loss is eventually borne by the producers, because middlemen involved in the value chains pay less to the producer to recover from the postharvest losses. Producers get less than 30% of the retail price of fruits and vegetables while the rest goes to middlemen who do not carry out any value addition activities. In the case of some perishables, this share is as low as 15%-20%.
The inefficient value chain also results in high fluctuations in the price of fruits and vegetables. Due to the lack of cold chain and storage facilities, the price nosedives during the harvest and shoots up during the lean season. For instance, in 2017, the price of tomatoes in Lahore, Pakistan, fluctuated by more than 800%. In the same year, the price fluctuation of fresh potatoes was about 177%. If the price fluctuations can be regulated by reducing their upper limit by 10%, the estimated annual savings in consumer spending on fruits and vegetables in Bangladesh, Nepal, Pakistan and Viet Nam will be $815 million, $145 million, $825 million and $581 million respectively based on 2018 information.
Like most developing countries, the current horticulture value chains in Bangladesh, Nepal, Pakistan and Vet Nam are dominated by thousands of unregulated intermediaries who collect products from millions of small farmers dispersed all over the country. In developed countries the producers and middlemen are linked to wholesale markets, which are either missing or in part dysfunctional in these four countries.
In order to enhance the reliable supply of fruits and vegetables, existing wholesale markets in these countries have to be improved. In parallel, a regulatory system needs to be enacted to better manage these markets. Given the federalized context of Nepal, a decentralized approach is deemed appropriate where the wholesale markets will be managed by local government while food safety and standard issues can be governed by the central government. In the case of the other three countries, an autonomous body can be developed to build, operate and manage the existing and new wholesale markets.
At the same time, an effective production and marketing architecture has to be set up. In this regard, collection centers with cold chain and other agri-logistics should be developed in the hinterlands. Depending on the need of the locality, some of these centers can work as terminal markets while others can specialize and serve the function of assembly markets. These centers will also require organized transport systems to carry the goods from the farms. These centers should also provide spaces for sorting, cleaning, grading, packaging, and storage. Site selection and space requirements for different postharvest management and handling practices need to be carefully studied under a masterplan.
It is in fact questionable whether the existing transmission channels in developing countries of perishables like fruits and vegetables from producers to consumers can be called value chains. The current channels destroy value in terms of quantity and quality instead of adding value while transmitting products from field to market. Therefore, investment to improve them is essential. Otherwise, the goal of ending hunger and malnutrition will be difficult to achieve.
Finding the right price balance for both consumers and producers is possible if an effective production-consumption architecture is set up.
This blog is based on topics discussed at the Rural Development and Food Security Forum 2019, held at ADB headquarters in Manila on 28 – 30 October 2019.