Excellencies, Distinguished Ladies and Gentlemen:
I would like to thank our hosts, the UN Industrial Development Organization (UNIDO) and the Turkish International Cooperation and Development Agency (TIKA), for organizing this forum.
I also congratulate them for their excellent choice of theme for this meeting. The three elements they have focused on – small and medium enterprises, agribusiness, and global integration – really point to the heart of the problem that we are trying to solve, and to a promising solution.
How can we enable farmers and entrepreneurs in the LDCS gain access to know-how, technology, finance and entrepreneurial energy by building effective, lasting international business partnerships?
This is an important question, I believe, because if and when we are able to find a way to enable growing numbers of small and medium firms to flourish by participating beneficially in global value chains, we will not only have improved LDC agriculture. We will also have broken the spring of the LDC’s “poverty trap.”
Why do I say this?
Well, first, as everyone here knows, the problem of LDC poverty is essentially a story of rural poverty. While more than two thirds of the people living in LDCs live in rural areas and depend on agriculture for their livelihood, the contribution of agriculture to GDP is only 26 percent of the total. In fact, incomes for the vast majority of farmers and rural workers in LDCs are at or near subsistence levels – and then only in good years, when drought or floods or other natural or human disasters have not interfered with the normal processes.
Second, raising productivity in agriculture and increasing value-addition in rural employment are the keys to raising incomes, improving food security, and reducing the dependency and vulnerability of rural populations – and they are the keys to providing the requisite national savings and tax revenues for sustainably achieving the Millennium Development Goals.
Excellencies, distinguished Ladies and Gentlemen,
On last December 16, OHRLLS and FAO teamed up for a pre-conference event on Enhancing Food Security through Agricultural Development and Access to Food and Nutrition. Reflecting on the experience of the past ten years, it was clear that we have made precious little progress in strengthening agricultural productivity or increasing value-addition in food processing and other rural enterprises.
The LDCs have experienced decades of prolonged under-investment in key infrastructure, lack of appropriate research and development and, in many cases, the dismantling of the few institutions capable of conducting agricultural policies.
As a result of the low availability of capital, and the limited use of fertilizers and high-yielding crop varieties, we have seen stagnating labour productivity in the primary sector, and a marked divergence in agricultural productivity of LDCs from middle- and high income countries. Cereal yield per hectare in LDCs has increased only marginally over the last 20 years, and at a much slower rate than the world average. As agriculture in LDCs has become less competitive internationally, the LDCs have become more dependent on food imports than they were ten years ago.
So what is to be done?
Today we will be hearing from experts about a powerful idea, which has already been tested in Africa and elsewhere, for transforming agriculture and rural economic activity in LDCs. That idea is integration of LDCs into global agribusiness value chains. Three aspects of this idea are especially appealing:
1) The recognition that the very powerful business idea that has long ago been proven in manufacturing and extended more recently to services can also be applied successfully in agriculture – this is the idea of distributed value creation, extending the logic of the division of labour to unlock powerful new opportunities for innovative cross-border collaboration between specialized firms;
2) The possibility that, as we learned in another preconference event co-sponsored by UNIDO and OHRLLS, participation in value-chains can be, as it has been in many other contexts, a very efficient mechanism for knowledge sharing and knowledge diffusion among partners in a distributed process; and
3) The implied willingness of international entrepreneurs to roll up their sleeves and make substantial investment of time, energy, intellectual capital, and financial resources to make such a process work.
All of this is very exciting, but there are risks as well, and I want to highlight some of them:
First, there is the possibility that without concomitant investments by national governments and their international partners in the supporting infrastructure, including the appropriate technical and scientific “knowledge infrastructure”, it is possible that the uplifting potential of LDC producers’ integration in value chains will be missed, and the agribusiness cooperation then will either wither on the vine or become an isolated enclave in a sea of subsistence farming.
Second, participation in value chains can produce substantial gains for local partners, but establishing the appropriate legal, regulatory and policy environment can be quite complex and challenging. The public sector must provide a business-enabling regulatory and policy environment that is both stable and efficient. It must participate actively and transparently to build the partnership in ways that inspire confidence among all stakeholders and that also allow local farmers and entrepreneurs as well as their international partners to plan for the long run.
Third, host governments must establish metrics to assess the social as well as economic value of participation in value chains. Sustainable, long-term value creation requires a clear win-win for all stakeholders. It also requires progressive efforts, often in the form of complementary action and investments by the public sector, to assure that local producers are not permanently locked in to low value-addition activities.
Excellencies, distinguished Ladies and Gentlemen,
Allow me to sum up by observing that a good business deal is one that works well for everyone. It will prove better for all parties, public and private, to put in the effort up front to design the partnership well, rather than to leave the private parties simply to figure it out as they go along.
These are very general thoughts. I look forward to hearing from the experts participating in today’s panel on what real world experiences can teach us about how to unlock the vast potential of LDC participation in global agribusiness value chains.