1

Major Issues of Reducing Post-Harvest Losses from Farm Gate

to Storage

Tony Shih-Hsun HsuNational Taiwan University

Aug. 5, 2013

2

OUTLINE

• Major Trends in Agriculture• Issues on Returns to Scale• Supply Chain Management• Issues on Agribusiness: The Quiet Revolution

in Staple Food Value Chains• Issues on Sustainability: Cost/Benefit Analysis• Agricultural Policies on Reducing Losses: A

Food Value Chain View

3

MAJOR TRENDS IN AGRICULTURE

4

During the first ten years of the 21st Century, we have witnessed a rapid transformation in the face and practice of agriculture, one of the oldest enterprises in human civilization. Among the major new developments or trends are:

5

Commercialization

• Agricultural production is merging with agribusiness, food supply chain management, and operating at ever-increasing scales with greater efficiency and profit.

• Agriculture is moving from labor intensive toward more capital intensive enterprise.

6

Globalization

• Trade and exchange of products are becoming even more active.

• Treaties such as WTO, FTA, TPP and RCEP are having far-reaching effects on the agriculture.

• Multi-national companies with international production and marketing are becoming the key players.

7

Science and Technology

• Science- and technology-driven agriculture is critical for survival and success.

• Biotechnology, in particular, will be part of the solution to deal with issues such as food safety, food shortages, etc.

8

Environmental Protection

• Excessive use of chemical fertilizers and agro-chemicals are increasingly problematic to the environment.

• The larger scale of crop and animal production today has a negative impact on land, air, and water quality.

• Solutions to these problems— new regulations and environmentally-friendly technologies—are not only increasing in demand, but also becoming a necessity for sustainable agricultural development.

9

Energy production

• With oil price increase and increasing concern about global climate change, governments, industries, and research institutes around the world have stepped up research to decrease the use of fossil fuels and to invest in clean, renewable energy sources, including bio-ethanol, bio-diesel, biogas, and biomass.

• For the production of these bio-fuels, the agricultural system—with its scale, infrastructure, and logistics—is uniquely qualified to offer cost-effective solutions.

• This will be a new and vital aspect of agriculture in the 21st Century.

10

Major Issues of Reducing food loss/waste are embedded in the trends in agriculture

• Food loss refers to the decrease in edible food mass at the production, post-harvest and processing stages of the food supply chain, mostly in developing countries.

• Food waste, a symptom of developed countries' consumer lifestyles, refers to the discard of foods at the retail and consumer levels.

• This food wastage represents a missed opportunity to food security and comes at a steep environmental price.

11

12

13

ISSUE ON RETURNS TO SCALE

14

According to Thomas Reardon’s Research past 10 years on China, Bangladesh, India, Indonesia, Philippines, VietnamOn eve of Green Revolution, debate in these countries on development path to choose: a) large-farm development path

– with supporters saying large estate farms = fast development

– supporters saying (1) there are no good technologies for small farms; (2) and small farms won’t adopt new technologies

15

b) “small farm development path”With supporters saying • Green Revolution provides technology that

makes small farmers as or more productive than large estate farms

• small farm path fits “land scarce, labor abundant” situation

• failure of big collective farm (early) path of China• small farm path promotes “broad-based rural

income growth”Via local production linkagesVia local consumption linkages

16

c) All six countries adopted “small farm development path” starting with the Green Revolution in the 1970s to now:• massive investments in rural infrastructure • massive investments in wholesale markets• massive investments in agriculture R&D and

extension• gradually gave land control rights to small

farmers as incentive to invest long-term• liberalized food markets to create incentive for

small farmers to invest and modernize

17

SUPPLY CHAIN MANAGEMENT

18

Segmentation of Production

• Production is “sliced and diced” into separate fragments.

• “Global value chain” - The possibility of slicing up and optimizing value chain activities among multiple companies and various geographical locations

• In these chains, core activities are organized as separate but coordinated phases.

19

Segmentation of Production

• Food supply chain: farmers, farm input suppliers, traders, mills, cold storages, and retailers

• With specialization in specific tasks and their close integration into a highly coordinated business model, these chains of related activities result in the creation of more “added value” than the sum of the value of the constituent parts and processes.

20

Segmentation of Production

• Today’s most integrated value chains combine two interlinked business models: a demand chain and a supply chain

21

Schematic presentation of a value chain

22

Definition of Supply Chain

“All activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be supplies, intermediates, third-party service providers, and customers.”

- Council of Supply Chain Management Professionals (CSCMP)

23

Definition of Supply Chain

• Coordinating the timely operation of industrial networks is a complex exercise, involving the provision of logistic services and supported by advanced information and decision system (e.g., infrastructure services).

• Outsourcing v.s. Insourcing

24

• With specialization in specific tasks and their close integration into a highly coordinated business model, these chains of related activities result in the creation of more “added value” than the sum of the value of the constituent parts and processes.

25

Vertical Integration

• Vertical integration is about corporate strategy and relates to the “make” or “buy” decision companies invariably face.

• While outsourcing is an example of the “buy” approach (act of purchasing from an external supplier), vertical integration involves an “insourcing” or “make” option (choice of producing an item or keeping a specific activity internally).

26

Vertical Integration

• Reduced operational costs and better coordination of the supply chain are the key benefits sought by vertically integrated enterprises.

• Vertical integration can be achieved not only through direct ownership, but also by means of contracted relationships (at “arm’s length”) with suppliers.

• Outsourcing and “Market failure”

27

An example of vertical integration

Innovation and Best Practices in Agricultural Production-

The Case of DouNan Farmers’ Association in Chinese Taipei

28

Business Weekly Cover’s Story

Business Weekly• 15 young farmers constitutes

the farming team• Each can earn 3 million NTD

(100,000 USD) per year

29

Case Study - DouNan Farmers’ Association (FA)

Yunlin County,DouNan Town

• Total Population: 47,000• FA members: 9,107• safety labeling system demo in 2003.

30

Custom Farming Team in DouNan

31

Innovations and Policies1. Innovations in farming system

– Satellite System– Supply Chain Management

• Strategic planning to add product values• Modernization in Post-harvest Processes• Adopting Good Agricultural Practices (GAP)• Zero post-harvest losses with recycling

2. Policies – “Small Landlord & Big tenant” Program– Encourage old farmers to retire early

32

Satellite System (1/2)• Concept: In a district with agricultural structure of satellite

system responsible for marketing and planning.

Farmer’s Association

ProcessStoragePackage

Market

Super marketExport

farmer farmer

farmerfarmer

Custom farming team

Marketing

Information

Products

Planning

33

Sales GroupFarmers’ association(3 people)

Lease Land

Management Production Marketing

inform harvest

Manage Cultivate Sale

landlord

landlord

landlord

Domestic Supermarkets

Foreign Market

1. Responsible for leasing farm land.

2. Monitoring crop growth, Traceability

1. Till, fertilize, sow, harvest with mechanical power

2. Efficient soil conservation practices

1. Use cold storages to provide off-season products for better price

2. Direct marketing to reduce transaction costs

-Satellite System (2/2)

Tenant farmer Field Managers (6 people)

Custom FarmingMachinery operator (6 people)

34

35

ISSUE ON AGRIBUSINESS:THE QUIET REVOLUTION IN STAPLE FOOD VALUE CHAINS

36

Issues of Reardon’s research on the 6 countries:• What progress have they made in “small

farm modernization”?• What progress have they made in

developing supply chains from small farms to domestic market (95% of the food market in Asia), especially the rapidly growing cities (urban areas are 75% of food market in Asia) and export markets?

37

Summary of findings based on detailed survey evidence• In past 10 years in the 6 countries• large sample surveys in all segments of

food supply chains (farmers, farm input suppliers, traders, mills, cold storages, and retailers)

• nearly 10,000 farmers and supply chain actors surveyed

38

Found surprising findings: rapid and widespread modernization AND diversification of small farmsrapid modernization of food supply chains .. … upstream from farm: in supply of inputs and services to farms, … downstream, services after the farm-gate, in wholesale, processing, and retail… with small farms benefited, “sandwiched” between the modernizing upstream and downstream

39

1) Rapid modernization of small farms (1-3 hectares)

• Rapid Commercialization of small farms shifted from subsistence farms to “small commercialized farms”

- selling 70-90% of outputsmall farms rapidly becoming “small

businesses”• Rapid Intensification of small farms Shifted

into high use of new varieties, purchased seed, fertilizer, pesticide, herbicide

40

• Rapid mechanization of small farming: rapid shift to high use of farm machinery to free labor from grain farming to higher income activities (horticulture, rural nonfarm jobs)

- very rapid increase in rental of machines - very rapid development of “farm machine services small enterprises: rice harvest services; mango sprayer-traders

41

2. Rapid Diversification of Small Farms• Small farmers: “climbing the value ladder”!• Shifting from rice/wheat into vegetables,

fruit, fish, livestock, dairy, grams/pulses (Earn 4-8 times more than in rice farming)

• Shifting from low-quality rice high quality rice (50-100% higher returns) (Vietnam, China)

• Shifting from just farm income to farm + rural nonfarm income (now 50% of farm household incomes)

42

3) Quiet Revolution in food supply chains: upstream + downstream from farms• Mainly “grassroot” revolution: small/medium

enterprises• Driven by private sector (not government

intervention)• Emergence of 1000’s of small enterprises in

input and services supply

43

• Rapid spread of “cold storages”• Rapid modernization of wholesale markets

and traders!• Rapid modernization of rice mills• Spread of supermarkets in all 6 countries

Supply chain development important because it forms 50-70% of food costs to consumers

Very few post-harvest losses!

44

ISSUE ON SUSTAINABILITY- COST/BENEFIT ANALYSIS

45

Abundance of Agricultural Residues Availability

Cane Rice Fruit and vegetable

PalmForestryWood, driftwood, shavings

46

47

Biomass Refinement Logistics• Collection and transportation of available biomass

?????

48

Agricultural and Industrial Application of Biomass Briquette

Biomass Transport

Biomass Briquette

Electricity Generation in furnace

Pulverize

Livestock feed and bedding

Mushroom cultivation

Activated charcoal for organicsoil additive

Greenhouse energy supply & CO2

Sugar fermentation

Hydration High yield biomass pulp

Versatile paper products

Organic Cultivation and refinement

Dehydrated food

Health Food Storage

49

Oil Palm Waste

Forest Waste

Rice Straw, Grass

Corn Stover

Sugar Cane

Palm EFB Press & Broker

Wood Waste Broker

Bagasse From Sugar Mill

Stover Balling

Stover Shredder

Shredded size

Biomass Dryer

Mobile Briquette System

Biomass Briquette

Briquette Packing & Consumer Produce

Biomass Crusher & Dust Remover

Briquette Machine Feeding System

Biomass Boiler

Counter Pressure Turbine & ORC Biomass Power Generator

Industrial Park User

50

Baling and Shredding on Site

51

Mobile Production of Biomass Briquettes

52

Biomass Briquettes for Different Applications

53

Boiler

Electricity & Ash

Production

Ash Fertilizer for Production

Rice MillField & Rice

Mill Biomass

Collection

Processing Factory

Biomass Briquette

Biomass Recycling

54

Role of Government: IMPORTANT

a) According to Reardon’s research, in all 6 countries (except grain in India) government role in direct intervention is VERY SMALL

- tiny role in input supply- tiny role in crop marketing

55

b) In all 6 countries the role of government as “enabling farmers and grass-roots private sector” is VERY LARGE• agricultural research: seed varieties• roads• ports• electricity grids• permitting cell phone expansion • information and extension

56

AGRICULTURAL POLICIES ON REDUCING LOSSES- A FOOD VALUE CHAIN VIEW

57

• Reasons for food losses and waste: financial, managerial and technical limitations in harvesting, storage and cooling , packaging and marketing

• Need to help increase efficiency in reducing food losses and waste through well supply chain management

58

• Reducing logistic costs– Reducing supply chain barriers could increase

world GDP over 6 times more than removing all tariffs (Source: “Enabling Trade: Valuing Growth Opportunities”, WEF-WB Report 2013)

– Investments in infrastructure, transportation, food industries and packaging industries are also required.

59

• Agricultural prices and CPI– Prices and value added

• Over-production due to government inappropriate policies

• Population aging and low fertility rate• Adaptions in response to Climate Change• Integrated approach for Economy, Environment,

and Energy (3E) problems– one way to address the haze problem– Incentives for collecting agricultural residues and

loss/waste for biomass use–

60

• Power of agribusiness entrepreneurship– Profit maximization and cost minimization

• Policies taking care of interests of all stakeholders and enhancing the role of public-private partnership (PPP) along the entire food supply chain

• Quantitative assessment and large sample survey

Many thanks for Listening