The impact of food standards on inclusive growth in agriculture: the case of Bangladesh
Smallholder farmers in developing countries are increasingly integrated into global markets, and the development of food standards worldwide has an increasingly influence on these smallholder farmers, even if they only produce for the national markets. Even though several thought leaders agree that potentially these trends can have a positive effect on smallholder farmers, others argue that food standards are reinforcing global inequality and poverty.
This report describes policy recommendations on the Dutch “Aid to Trade” development policy and what implications this has for the policy in Bangladesh to mitigate the effect of increased food standards on smallholders. The study was conducted by the BoP Innovation Center on behalf of The Embassy of the Kingdom of the Netherlands (EKN) in Bangladesh and the Food & Business Knowledge Platform (F&BKP) and included an extensive literature review and field research in Bangladesh. Please find below the link for the full report.
The Embassy of the Kingdom of the Netherlands (EKN) in Dhaka through its food and nutrition security program is supporting private sector activity in Bangladesh in order to create employment and transfer knowledge and skills, as to contribute to inclusive growth. However, while implementing this program the embassy encountered situations in the field where increased demands on smallholders to produce safe and quality food, pushed smallholders out of the market in favour of larger producers. This raised the question whether increased standards in the food sector result in exclusive growth instead of inclusive growth. In order to provide an answer to this questions, BoP Innovation Center executed desk research to look at the findings in different publications on the effect of food standards on food security and smallholder farmers, as well as more general publications on the role of smallholder farmers in more vertically integrated high value chains.
In addition to the desk study, three field visits were held in Bangladesh between April and June 2015. Amongst others to local communities where the EKN funded Safal and Blue Gold projects are implemented. During these field visits, several focus group discussions were held. In Dhaka, key informant interviews were held with important stakeholders at the Bangladeshi government and at NGO’s. Also, a small seminar was held to discuss preliminary findings of the field research. The learnings from those discussions are also integrated in the final report.
From the general literature research, it is clear that there is no easy answer to the question whether increased food standards push smallholder farmers out of the agricultural value chain. In theory, the effect can take place, but it strongly relates to the extent the smallholder farmer has costs to maintain its position in a more high quality agricultural value chain, and the extent to which supportive measures are in place to lower these costs. These “costs of compliance” are often related to investments in measures such as improved inputs, use of machinery and equipment, capacity building and training, and the setting up of management information systems.
It also strongly relates to the type of market a smallholder is producing for (local/rural markets versus urban and international markets), especially in a country with a large national market and a large agricultural workforce such as Bangladesh. And if the “crowding out” effect takes place, the focus on food quality and food safety can create value adding activities along the agricultural value chain that offer increased “non-farm” employment opportunities that could offer farmers an income generating alternative to running their own farms.
More specifically for Bangladesh, the study found that increased demands around food safety currently do not reach the majority of smallholder farmers in Bangladesh, even though most consumers are aware of the importance of food safety. Local agricultural markets are still rather isolated and therefore are influenced very limited by the increasing demand for safe food in more advanced markets.
Current practices to assess the safety and quality of food do not necessarily contribute to improvements. Agricultural products are assessed superficially based on physical aspects and arbitrary tests that result in farmers having subjective arguments with buyers over the quality and safety of products. Producing safe food does not result in additional costs for farmers but is mainly related to behavioural change. Keeping food safe during transport, sales, preparation and consumption is a major issue that currently receives little attention
Transaction costs of dealing with a large group of small farmers can be prohibitive, not only for the smallholder farmers themselves, but also for buyers. Agricultural development projects incur part of the transaction cost on behalf of the farmers and the company with the activities that they implement to bring both parties closer together. Without these projects being there, trade will still happen but not necessarily reach the target group of these development projects, which are small farmers in Bangladesh. Increased private sector innovation in reducing these transaction costs and perceived risk of doing business with smallholder farmers could possibly reduce the need for projects such as the ones funded by EKN Dhaka to facilitate these linkages between (international) private sector and Bangladeshi smallholder farmers.
The professionalization of the agricultural value chain in Bangladesh will lead to more value addition to products, meaning more grading, cleaning packaging and/or processing. All these activities will create jobs that can provide “non-farm” employment for smallholder farmers that (have to) decide to abandon their farming activities, and look for jobs in the urban areas. This way the potential “crowding out” effect of more professional and integrated agricultural value chains is (partly) forestalled.
A focus on the local business environment is also important. A lot of food bought by the BoP consumers comes from local markets and is produced locally. These short value chains need to be upgraded as well to ensure accountability with actors in the chain and awareness for consumers. Strong farmer organizations, a conducive local environment (e.g. producers / buyers network) and good quality service provision for farmers is essential for this to happen. All projects in Bangladesh have opportunities to do this through their farmer organisations.
To create success in increasing gender equality, interventions need to be more extensive than upgrading the knowledge of women in specific value chains. It is important to create financial ownership, ensure decision making power, and create a perception with buyers that women are capable producers /business people. Also, more focus should be on how women can combine this work with their responsibilities towards the children and in the households. Employers should be more accommodating to their situations.
Encouraging innovation at aggregation points is a major opportunity. Being able to test on different aspects during aggregation will be of huge benefit to farmers. It is harder to tamper with the results and the quality of produce can be determined in an objective way. Cheap tests that will support food safety tests can ensure buyers start taking this into account more. These type of tests are available, such as the low cost testing kits for dairy of Dutch company Agriprom. R&D in other sectors could lead to big opportunities within the country.
Stimulating more cooperation in the agribusiness sector in Bangladesh could help accelerate these activities. Examples from other countries have shown that the most successful examples are the ones that are implemented in public-private partnerships. The number of PPPs in the Bangladeshi agricultural sector seems to be limited, so here seems to be room for improvement. A “challenge fund” focused on Bangladeshi agribusinesses, encouraging to develop business models in collaboration with public actors, could be a step in the right direction.
Whether increased standards in the food sector result in exclusive growth instead of inclusive growth is a relevant question, as both improving food and safety quality and stimulating inclusive business are prominent themes on the international development agenda. As the desk study showed, there is no clear answer to this question. By linking literature to practice in Bangladesh, the report provides a valuable contribution to the food and nutrition security knowledge agenda. However, the report also concludes that further research in three specific areas is necessary to arrive at further fine-tuning of policy recommendations:
- Understanding farmer decision making: current assumptions on changing behaviour in agriculture depend heavily on the farmer making rational choices based on profit. An increased understanding of decision making on household level will support better design of interventions.
- Market introduction strategies for low-cost testing equipment: increasing opportunities to measure food quality and food safety objectively will allow traders to set prices based on these characteristics. Farmers will not have to deal with subjective tests and can count on a price fair for the quality of the product they deliver.
- Transition strategy for brokering role of food security programs: transaction costs between retailers, food processors and exporters with small farmers are high compared to bigger farmers. The introduction of innovative business models that can keep these coordination costs low and build trust between producers and buyers will be key to reducing direct brokering support.