Elements of Agri-nourishment Supply Chains in Transition Countries Johan F.M. Swinnen The World Bank .

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Dynamics of Agri-food Supply Chains in Transition Countries Johan F.M. Swinnen The World Bank. Sarajevo Conference May 24-26 , 2004. Background . Breakdown of the relationships of farms with input suppliers and output markets.
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Flow of Agri-nourishment Supply Chains in Transition Countries Johan F.M. Swinnen The World Bank Sarajevo Conference May 24-26 , 2004

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Background Breakdown of the connections of homesteads with information providers and yield markets. Contracting and vertical coordination in inventory network rising to conquer these obstructions Processes have been a motor of development in most progressive ECA nations.

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Key Issues/Questions How critical/general is this procedure ? Which models ? Which conditions are required ? Impacts ? Who gets the advantages ? (Shouldn\'t something be said about little ranchers ?) Which part does FDI play ? Suggestions for government strategy and universal associations ?

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Series of contextual analyses, meets and reviews Different segments (dairy, cotton, organic products & vegetables, … ) Different nations crosswise over ECA Methodology

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1. Imperative ? Yes.

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Farm Comp. Family Farms Hungary 1997 94 17 Czech 1999 98 46 Slovak 1999 96 35 Farms offering on contract in Central Europe (% of all)

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Dairy in North Poland ALL dairy organizations help providers (ranches) through : Input supply programs Credit programs Extension benefits PART : Bank advance certification Programs for SMALL and LARGE providers

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Dairy in Bulgaria, Slovakia, Poland

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CIS 5 nation study : 40% of agri-nourishment processors offers credit to providers Kazakhstan cotton : 71% of cotton agriculturists contracts with ginner, with help bundles

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How Important ? Sugar segment : 80 – 90 % of CEEC sugar division is FDI, utilizing contracts & cultivate help programs Dairy & oilseeds part : huge FDI, and most organizations actualize programs, with solid overflow consequences for household organizations Supermarkets : Some, yet not by and large After 1998 : VC in Russian evolved way of life by residential ventures from outside agribusiness Kazakhstan : grain exchanging organizations contributing upstream; cotton ginning : contracting for the most part with little ranches, ...

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2. Different Models & Motivations Commodity particular Transition-organize particular Securing essential supplies Quality ! Numerous developments (basic & complex) Key is "Non-conventional" outline (likewise e.g. Distribution center Receipt Systems)

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Czech Slovak Hung Contract cost higher 12 10 Avoid value vulnerability 6 21 33 Guaranteed deals 60 50 43 Immediate installment 7 11 3 Easier to get credit 0 9 Contract - data sources or TA 10 6 2 Other 4 2 0 Reasons for Contracting – CEE

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Reasons for Contracting Kazak Cotton Farmers

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Agri-business Motivations for Vertical Integration Early stage : Securing fundamental supplies (ex: pre-back, information sources, … ) Advanced : Upgrading nature of provisions (ex: specialized and administration help, venture advances, advance assurances, … )

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Supermarket Assistance to ranches Available confirmation shows that cutting edge retailers present comparable bundles "in the event that they need to" to secure quality supplies. E.g. Focal America (Berdegue et al) Croatia (Reardon et al)

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Transition Region is Special Collapse of homestead yield and domesticated animals numbers makes inconsistency between handling limit and supply History of low quality This makes it a "Provider\'s MARKET" (contrasted with different districts)

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Some Examples of More Complex Models

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Integrating Multiple Stages : INTERBREW ( Brewing Multinational) Core business = fermenting Forced to vertically incorporate to guarantee quality malt/grain/seed General system connected distinctively in various nations b/c of nearby conditions Bring in co-remote financial specialists to help with non-center exercises and set up ranch help Programs interlink markets Brewing Co. Malting Co. Grain cultivate Seed supply

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Proces./Retail – ensured provider credits: JUHOSUKOR in Slovakia & KONZUM in Croatia Retailer/processor gives advance certifications to bank advances to providers Retail/Processing Co. Cultivate Bank

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Dairy Processor Becomes Financial Institution: DANONE in Romania Processor goes up against keeping money work: gives advances to ranches in light of strategies for success takes security Provides installment ensure for information providers Processing Farm Input Supplier Bank

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Lending with circulated chance: RABOBANK - SPVs Financial establishment is remote speculator Special reason vehicle (SPV) to appropriate hazard similarly among accomplices Ex. where gathering of little agriculturists shaped agreeable to take an interest in SPV Processing co. SPV Farm Bank Input Supplier

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3. Contract Enforcement is key for ANY model Crucial to make VC maintainable Not self-evident: Many cases and stories where contract requirement issues undermines VC Private authorization systems can be more essential than open foundations

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4. Impacts Important Direct Effects : Enhanced QUALITY (& higher costs) Increased PRODUCTIVITY (eg CIS concentrate on) Important Indirect Effects: Spillovers Contract replication by different organizations Farm help replication Household level overflows

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Change in yields in Central Europe 1989-2000

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Change in Quality Dairy in North Poland 1996-2001

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Household Spillover Effects Reduced hazard (ensured cost for contracted harvest) without protection markets Improved access to credit (money for contracted yield) with flawed capital markets Increased profitability of non-contracted exercises, through enhanced administration and better information utilize

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5. Remote speculation (FDI) Conceptually, no requirement for FDI Empirically: FDI is main impetus for contract developments Domestic overflows are vital Several exemptions: FIG ventures (Russia, Kaz), Cotton Kazakhstan Crucial component shows up access to outside fund (and administration methodology)

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6. Will little homesteads survive ? Key concern Lots of stories and instinct Usually in view of little confirmation

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The Key Concern Modern supply chains (or "The grocery store upheaval ") will push a substantial share of agriculturists, specifically little ranchers, out of the market as they neglect to meet the prerequisites to offer to these chains ("The general stores")

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The Key Concern Small ranchers may \'neglect to measure up\' in light of the fact that : Fixed part in exchange costs makes it all the more expensive to manage numerous little ranchers than with a couple of vast homesteads Small homesteads are obliged monetarily (inside as well as remotely) to make vital speculations

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Evidence ? Numerous stories however little \'hard confirmation\' What exists propose that We ought to consider this worry important But actually a great deal more mind boggling and nuanced than presumptions

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Evidence – section 1 Interviews with agri-nourishment organizations affirms inclination for bigger providers Specialized wholesalers and markets like to work with (generally) huge FFV makers in Croatia (Reardon et al 2003) Danone and Megle in Bulgaria and Romania have system concentrated on >20 dairy animals ranches CIS study discovers 60% of processors have least size for some of its homestead help programs

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Evidence – section 2 Examples of organization projects to little agriculturists being entirely effective . Eg. Croatian F&V providers to grocery stores Kazak cotton Polish and Romanian dairy e.g. Friesland Romania works with 40,000 little ranches through 1,000 gathering focuses; contracts incorporate homestead help bundles

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Impact on Loans and Investment Small homesteads in Polish Dairy area

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Impact on little homesteads – Poland dairy

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Evidence – section 2 CIS concentrate on finds that processors don\'t separate on size for giving essential projects (agronomic support, physical data sources, incite installments, … ) Both Polish dairy study and CIS consider find that FDI organizations are not more prone to cut little homesteads as providers (the inverse)

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More imperatively Modern dairy organizations concentrating on brilliant market (incl retail part) tend to help little ranches; contrasted with market channels focused to casual and low quality deals which don\'t In Lithuania, all credit which little dairy ranches get is through the dairy organizations (can\'t access bank advances or open help, incl SAPARD)

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Why work with little providers ? Now and again processors must choose between limited options : little homesteads speak to most supply (eg Poland, numerous Balkan nations, Transcaucausus, Kyrgyz, … ) Eg. Romania: 95% of dairy ranches have 1-2 bovines. => Small Farm Paradox ? "preparing organizations focused on that readiness to learn, accept exhort, and an expert mentality were more imperative than size in building up productive homestead processor relationship" (CIS contemplate)

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Supply Chain Revolution or Evolution ? A few variables recommend that the effect of the store transformation on agriculturists, including little ranchers, might be less emotional in a few settings, and may have beneficial outcomes experiencing significant change nations

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A. Market is a piece of chain For greater part of homestead yield there is no immediate connection with general stores: FFV is 15-20% of ag yield. Most homestead deliver (drain, grains, sugar, cotton, and so forth.) is prepared before it achieves retail division. The effect on these ranches will be roundabout through the nourishment preparing segment. The impacts might be more like that of FDI in nourishment preparing. These impacts have been certain in a few cases for little ranches

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B. Cultivate structure is blended Share of extensive ranch organizations (% arrive utilize)

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C. Next stride in significant changes Agricultural rebuilding on the move nations (Output, exchange, work, FDI, sustenance industry rebuilding, … .) has been emotional over recent years

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Revolution or advancement ? Change in ag work 1998-2001

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Revolution or advancement ? EU – CEEC exchange ag a

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