Conference on Agrarian Reform and Rural Development
Commission 2: Rural Development and Poverty Alleviation
What are the opportunities for small-scale producers and workers in new rural development challenges?
By IFAP President Jack Wilkinson, March 2006
Introduction
It is a pleasure for me to participate in this Conference on Agrarian Reform and Rural Development. I am a farmer from Canada producing grains, oilseeds and beef cattle, and I am President of the International Federation of Agricultural Producers, IFAP.
IFAP is the world farmers’ organization. It is based in Paris, and currently has in membership 116 national farmers’ organisations from 83 countries, representing over 600 million farm families.
One of the greatest challenges we are facing is dealing with the elimination of rural poverty and achieving food security. IFAP therefore appreciates this initiative to re-focus International agencies on rural development. This has been neglected by all development and donors agencies for too long resulting in unacceptable levels of rural poverty. Farmers are the ones in the rural areas and therefore it is their livelihoods that are at stake.
At the international level, we have seen support to agriculture diminish from 28 Billion to approximately 10 Billion U.S Dollars. As farmers we have lost many of our marketing structures many of our marketing co-operatives have collapsed, in a world where the food chain has become increasingly dominated by multinationals who have not displayed a good track record in paying farmers fair prices. Many of our farmers are not even connected to the market. They do not have roads, electricity, water, and infrastructure and in some cases do not have clear title to their land. Some national governments tax farm inputs and others tax their exports. So there is much to do at the International and national level in order to improve the lot of farmers.
Agriculture is typically the economic nexus of the rural areas. In developing countries it generates employment; provide food security and the main source of income. For this reason rural poverty reduction has to be addressed in all its dimensions which require interventions in a wide spectrum of sectors or thematic areas. IFAP continue to press for increased investments in the rural areas, support to agricultural research and extension, secure land tenure and access to productive resources, however, we will not improve the situation of farmers and see growth in the agricultural sector if farmers are struggling in markets where they are not equal partners.
There are some aspects of poverty alleviation that are of strategic and overriding significance. One such aspect is the improvement of income for farmers through gainful participation in the markets. This is even a greater challenge for the small-scale farmers who lack the means to participate in the markets. It is also proven that even when the rural poor participate in markets there are no significant increases in their incomes. The extremely low remuneration they receive explains the persistence of poverty. The challenge is therefore to improve the terms on which the poor engage in the markets as well as their participation.
Challenges for small-scale producers
The structural adjustment programs introduced in the 1990’s were supposed to remove what was seen as major constraints to economic growth and poverty reduction. A considerably expanded role of the market was expected to increase efficiency in resource allocation and resource use as well as provide reductions in transaction costs. While these adjustments may have had benefits in other sectors they resulted in deterioration of the agricultural sector, especially in developing countries. There was lack of private sector to take the roles that government performed before. Transport problems are enormous in the rural areas infrastructural constraints, especially lack of information on marketing opportunities, insufficient capacity to respond to packing, grading, and quality standards of markets. There is very limited access to production technology, inputs, capital knowledge and skills. Insecure or insufficient access to land and other productive resources, production risks and risks related to market involvement such as demand and price fluctuations, unfair international competition, quality requirement, and more often risks of food insecurity. Most importantly though is the weak bargaining power of these farmers vis-à-vis market agents.
The other huge challenge is the government policies, laws and regulations which should be explicit in supporting the actors in the rural areas. This consists of the informal sector which is normally in conflict with the formal sector which is encouraged and supported. The private sector has been expected to take up the role of government but the regulatory and legal barriers to their operation, poor physical infrastructure, lack of financial services in agricultural sector and lack of skills to deal with this sector prohibits many from venturing into investments in the rural areas. The policies at local government level are not always in harmony with the central government. The local government tend to impose taxes on farm produce in form of cess and entry barriers to towns even where no services have been provided to warrant such payments.
The private sector is now emerging in form of supermarkets which have global chains. This results in the farmers having to compete with similar products from the rest of the world. The lack of a national food policy in many of our developing countries means farmers have no market access even of their own local market as the borders have been open without consideration to food security and food sovereignty.
Current trends in the food-chain: - Opportunity or threat for farmers?
The economic structure of the food and agricultural system around the world is undergoing major changes. In particular, three processes are occurring simultaneously.
The first process is “horizontal integration” that refers to the increased market concentration and control by a few firms at any stage of the food system, from the production of seed through the retailing of the final product. One of the basic requirements for a competitive system is that no one company is in a position to dominate the market price. Experience shows that when four companies gain control of at least half of the market share between them, this basic requirement for a competitive market system is violated. This concentration of market power distorts the correct functioning of markets.
The second process involved in restructuring of the food system is “vertical integration”. This is the process in which one, or several, companies acquire a significant amount of control over all stages in the food and agricultural system. Mergers and acquisitions is one way of achieving this control, but it can also occur by other means, such as joint ventures or long-term agreements. This process is often referred to as the development of a food chain or a seamless system. Companies involved in vertical integration can survive on low rates of return in one stage of the system as long as they receive good returns in other stages of the system (cross subsidisation). Those persons involved in only one stage of the system, like farmers who are only involved at the production stage, face serious economic consequences if profits in that stage fall below costs of production.
The third process is “global dominance” of the food system through vertical and horizontal integration in a host of countries around the world by a very limited number of transnational corporations. A corporation operating internationally can operate at a loss in one or two countries for a period of time as long as it receives good profits in other countries. Domestic companies operating in only one country do not have this flexibility and control, and a loss in their national markets can threaten their survival.
Ladies and Gentlemen,
For this topic I would like to concentrate on the supermarkets that may hold some opportunities as well as threats for the small-holder producers.
The supermarkets share of the food retail market is growing worldwide, with variations from region to region. The forces of globalisation and economic liberalisation have exposed the producers, medium processors and agribusiness to new opportunities as well as new forces of marginalisation.
In Europe the accelerated growth of the supermarket has resulted in global consolidations with a handful food retailers dominating in serving the population of 727million people with food retail sales in excess of 666,000 million Euros (2003). From this point of strength they are controlling and introducing procurement strategies and production constraints that no doubt are against the interests and the abilities of world’s producers.
The global food retail market is anticipated to grow at 22 per cent by 2006 with the bulk of growth being seen in the emerging markets of Asia and the Pacific. The first wave of growth has been in South America with a growth of 20% in 2002. The second wave is in Central Europe, Mexico Central America and Southeast Asia (20-40%) and the current wave is in Africa, South Asia Eastern Europe and China.
With these current trends of corporate concentration in trading, processing, manufacturing and retail, there are concerns as to whether the national production systems including the smallholders will secure and sustain their place within national and regional markets.
What are the opportunities for small-holders?
Farmer-owned cooperatives; Development of farmer-owned cooperatives for marketing and processing can assist in the improvement of farmers’ incomes and help to increase market share. Therefore, farmers seek a legislative framework that gives farmers and their co-operatives better possibilities to compete with multinational giants in processing and in having access to the retail trade.
Farmer marketing boards- Producer marketing boards, established under government authority, can improve farmers’ leverage in the marketplace and assist the effective marketing of farmers’ product. Marketing boards can help adapt production to market requirements, help improve product quality, negotiate prices with processors and/or operate single desk marketing systems on behalf of farmers.
Control of production by non-farmer-owned corporations- IFAP opposes the production of crops and livestock by processors or marketers, whether through total ownership or financing of total operations from farm to market by vertically integrated, non-farmer-owned corporations. Farmers support legislation prohibiting such vertical integration.
Competition legislation- Effective competition provisions can enhance competition for agricultural markets and help ensure fairness, transparency, protection and bargaining rights for producers. However care must be taken to ensure that competition policy does not undermine the effective operation of producer cooperatives and marketing boards. This means that mergers of cooperatives at national level should be allowed, taking into account the small size of the internal market in many countries. Further, farmers’ organisations must have the right to act collectively, in a similar way that trade unions are able to do.
At the international level, farmers seek increased cooperation among governments to develop a competition policy which controls the excesses that may arise from industrial concentration in the agri-food sector, but also respects and supports the role that cooperatives and marketing boards can play in resolving the imbalance of power between participants in the market chain.
Contract farming IFAP supports family farm contract producers, and supports policies that enhance fairness and provide producers protection in their agricultural production contracts.
Specifically, IFAP supports policies which:
- Require contracts to be written in plain language and that disclose risks to producers
- Provide producers a reasonable period of time in which to review and cancel contracts
- Protect producers from contract termination out of retaliation.
- Establishment of a ‘fast track’ commercial court, with a financial ceiling, to handle small claims from farmers related to contract disputes.
Capacity-building- IFAP urges development institutions and donor countries to give priority in their programs to building the capacity of farmers’ organisations so that they are able to meet the demands of their members, including strengthening their position in contract negotiations.
In Conclusion- Rural development and poverty alleviation cannot be achieved until and unless there is commitment from all actors. The national governments have a key role to develop the right policy environment and support. There is need to address the need to increase investments in the rural areas to provide jobs for non-farm workers and create alternative forms of livelihoods. It is important to note that farming is a key driver of non-farm activities in the rural areas and therefore the need to re-focus on profitability of the agricultural sector.
The aim of this conference of “creation of a Lasting Platform on Agrarian Reform and Rural Development that will promote a new way of thinking and working – based on a meaningful social dialogue – and that will guide a new vision and a basis for action for agrarian reform and rural development” is welcome but far too often farmers are only occasionally consulted, I propose farmers should be the central partner in this partnership effort.
Finally, there has been conferences and statements of good intentions from the International communities, it is time to take some concrete action at the national level if we are the meet the targets of the Millennium Development Goals. I hope in this Commission today we will be able to identify the key issues that need attention both in the Short term and the long term to make rural poverty history.
Thank you.