Asian supply chains are no longer a weak link
Sleepy. Stagnant. Outdated. For years, these were the terms many experts used to describe Asia’s food supply chains. “When we went to workshops and conferences in Asia,” says IFPRI Senior Research Fellow Bart Minten, “people would repeat the conventional wisdom without any empirical backup. But when we went to the field and talked to farmers and traders, often a different picture would emerge.”
The conventional wisdom goes like this: A typical Asian food supply chain is short, as farmers generally supply their crops to their own villages or local areas. Farmers are commonly victimized by local village traders who loan farmers money and set rapacious crop prices. These food supply chains, so crucial to Asia, which is home to more than two-thirds of the world’s poor and malnourished, are fragmented, inefficient, and bogged down by the use of outdated technology.
Not so, according to a new book from IFPRI and the Asian Development Bank (ADB). The Quiet Revolution in Staple Food Value Chains, by Thomas Reardon, Kevin Chen, Bart Minten, and Lourdes Adriano, examines domestic rice and potato value chains between the farm gate and the consumer in regions that serve large urban centers in Bangladesh, China, and India. After surveying more than 3,500 farmers, traders, millers, storage facilities, and retailers in the three countries, the authors found that many staple food chains throughout Asia have been dramatically transformed and modernized.
Indeed, the authors were so impressed with the rapid transformations they discovered that, as IFPRI Senior Research Fellow Kevin Chen explains, “we termed those changes a ‘quiet revolution.’”
Instead of limiting their research to the farm sector or the retail sector, the authors focused on the entire supply chain for rice and potatoes—two important staple crops. “There’s been very little research on these entire supply chains in the past,” says Reardon, a professor in Michigan State University’s Department of Agricultural, Food, and Resource Economics, a visiting IFPRI research fellow, and 1000 Talents Program Scholar at the Renmin University of China. “We found them to be surprisingly dynamic.”
Among other things, the researchers found that supply chains have become more efficient. Many links, or actors, in the supply chain have been eliminated. “There’s been a kind of disintermediation in the chain,” explains Reardon. For example, the role of the “loan shark” village trader has largely disappeared. Rice mills and cold storage facilities now deal directly with farmers. The study also found that, as chains have become more efficient and improvements have been made in transportation and cold storage facilities, wastage has declined. In many regions wastage in rice has dropped to only 1–2 percent and in potatoes, to 6–7 percent, compared with estimates of 30–40 percent under the older systems.
In addition, supply chain facilities have been modernized. For example, the study’s authors found an “exciting” rise in modern cold storage facilities, especially in India, followed by Bangladesh and China. They point to Agra, India, where only 5 percent of the potatoes, the country’s main vegetable crop, were going into cold storage in 1990; now 80 percent are. This change has extended the supply season, raised prices for producers, and reduced prices for consumers for this basic staple. Rice-milling facilities have been similarly upgraded, especially in China, with similar results.
And farmers themselves have changed. The myth of Asian farms as millions of tiny semi-subsistence operations is outdated. Thanks to the increasing use of insecticides, fertilizers, irrigation, and mechanization, much of the farming sector has been transformed, and many farmers now sell most or all of their products to rural and urban supply chains. Supply chains have expanded in size—some even stretch across a country—offering farmers a larger market. Explains Reardon, “These commercialized small or medium-sized farms should now be seen as small businesses.”
A Role for Government?
The study also explored the role of government in these transformations. On the one hand, at certain points the government must step out of the way. In India, for example, deregulation in the rice-milling sector led to an increase in private investment and technological improvements. Similar surges took place in Bangladesh and China after the government deregulated the rice wholesale market and rice-processing sectors.
On the other hand, government investments in agricultural research and development, roads, the power grid, the communications network, and other areas were essential to, as Reardon says, “make this transformation click.”
“One of the reasons for launching this study,” says Lourdes Adriano, practice leader in agriculture, food security, and rural development at ADB, “was to quantify what is really going on and improve the information available to policymakers and others.” While the dramatic changes described in the book are good news for hungry millions in Bangladesh, China, and India, the real challenge is to take the lessons learned, adapt them, and spread them throughout the region.