Agri-business: A global view revisited

Dr B K Mukhopadhyay

(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Is there any doubt that the contribution of the agri-sector business has been going up in the real sense if a holistic view is taken?

Agri-business as a concept was born at Harvard University in 1957 with the publication of the book “A Concept of Agri-Business,”  written by John David and A. Goldberg. It was introduced in the Philippines in early 1966, when the University of the Philippines offered an Agri-Business Management (ABM) programme at the undergraduate level.

‘Agri-business is the sum total of all operations involved in the manufacture and distribution of farm supplies, production activities on the farm, storage, processing, and distribution of farm commodities and items made from them’ (John David and Gold Berg). Actually, it is of recent origin.

The FAO rightly opined: ‘the 1990s saw a decline in the growth of world cereal consumption. This was due not to limits in production capacity but rather to slower growth in demand, partly caused by exceptional and largely transient factors.

Growth in consumption will resume, leading to growing dependence on imports in developing countries. The potential exists for traditional and new exporters to fill this gap, but problems of food security and environmental degradation will need to be addressed. Cereals are still by far the world’s most important sources of food, both for direct human consumption and indirectly as inputs to livestock production. What happens in the cereal sector is therefore crucial to world food supplies. Since the mid-1960s, the world has managed to raise cereal production by almost a billion metric tonnes. Over the next 30 years, it must do so again.

In a summarized form, we can jot down that agri-business involves three sectors: (a) Input sector: It deals with the supply of inputs required by farmers for raising crops, livestock, and other allied enterprises. These include seeds, fertilizers, chemicals, machinery, and fuel; (b) the farm sector, which aims at producing crops, livestock, and other products; and (c) the product sector, which deals with various aspects like storage, processing, and marketing the finished products so as to meet the dynamic needs of consumers.

Asian Experience

Myanmar’s mango is a good example on this score. Mango season runs from April to July, and the fruit is mostly exported to China via border trade, with other small shipments also sent to Malaysia, Singapore, and Thailand. The most popular variety, sein ta lone (diamond), is mainly grown in Mandalay Region and southern Shan State and has earned a good reputation internationally.

The market is tremendous, but a number of inherent problems stand in the way. Myanmar can only meet about ten percent of the demand because it doesn’t produce enough high-quality fruit. Not only Myanmar, but most of these economies suffer from traditional approaches. Such economies could export significantly more mangoes if they raised the quality and added value to the product. Markets like Japan only want fruit that has been carefully processed. Re-exporting is another area in which others reap the benefits. China, Singapore, and Malaysia buy mangoes from Myanmar, process them, and then re-export the finished product.

Transportation problems are very common on this scale. Farmers try to save money by overloading mangoes when they transport them, which damages the fruit and reduces their value. Besides, farmers also pick the fruit before it is fully ripe. Farmers sometimes rushed to harvest their crops when they heard a good price was available. Inadequate cold storage facilities have been another bottleneck. Actually, the industry needs capital investment to develop processing factories and better transport networks.

So far as Bangladesh is concerned, agricultural trade has been an important contributor to improved food security and price stability. Efforts are on there to expand the scope of international trade in agricultural products. Bangladesh has been successful in exporting cereals and high-value products [e.g., shrimp and fish] in part as a result of preferential trade agreements. Policy reforms backed by investments could further enable Bangladesh to bolster exports in these areas while meeting relevant quality and safety standards, among others.

India’s agro-business has been registering good upward swings too, among other Asian nations.

Africa: Coming Up?

Examples are not difficult to locate as far as Africa is concerned. So far, Ghana plays the dominant role in cocoa. The world’s cocoa production was around $10 billion. Ivory Coast, the world’s leading producer of cocoa with 2.4 million hectares (Mha) under cocoa, and Ghana, the second after Ivory Coast (1.5 Mha), produce around 53 percent of the world’s cocoa. More than half of the world’s chocolate comes from the cocoa plantations of Ghana and Côte d’Ivoire, where hundreds of thousands of smallholder farmers supply lucrative fair-trade markets in developed countries. Ghana produces high-quality cocoa that earns a premium price on the world market. Cocoa is an important cash crop in some such economies, contributing 7.5 percent of GDP in Côte d’Ivoire and 3.4 percent in Ghana in 2008. It accounts for as much as 70–100 percent of the household incomes of cocoa farmers in Ghana.

Ghana, though, is on track to achieve its one million metric tonnes of cocoa target in the last quarter of the year, yet it will face some gloomy days ahead. Increasing temperatures will lead to massive declines in cocoa production by 2030 in Ghana and Cote d’Ivoire, both in West Africa.

The CIAT’s [Colombia-based International Centre for Tropical Agriculture] new report—the first of its kind into the likely effects of climate change on cocoa production in the region—anticipates that areas of cocoa suitability will begin to decline by 2030 as average temperatures increase by one degree Celsius. It also disclosed that an expected annual temperature rise of more than two degrees Celsius by 2050 will leave not only Ghana but many of West Africa’s cocoa-producing areas too hot for chocolate. Warmer conditions mean the heat-sensitive cocoa trees will struggle to get enough water during the growing season, curtailing the development of cocoa pods, which contain the prized cocoa bean, the key ingredient in chocolate production, according to the report.

By 2050, a rise of 2.3 degrees Celsius will drastically affect production in lowland regions, including Western and Brong Ahafo. Cocoa trees are expected to struggle as the region’s dry season becomes increasingly intense, it is said.

Over a third of Ghana’s economy is agricultural. Products range from bananas, cassava (tapioca), cocoa, coffee, corn, and peanuts to timber. Two of Ghana’s major exports, gold and cocoa, enjoyed unprecedented high prices last year. In addition, Ghana experienced a record-high crop of cocoa. These factors helped increase Ghana’s exports. Ghana now plans to boost its exports by selling cassava, textiles, and palm oil to foreign markets. Ghana’s economic and trade health depends on whether it can maintain its robust export growth at a rate that exceeds oil price increases. This is more likely if gold and cocoa prices stay high and if Ghana can introduce more of its products and services to foreign markets. Cocoa has to continue with its vital contributions.

Therefore, agribusiness is the de facto sum total of all operations or activities involved in the production and marketing of farm supplies and farm products to achieve the targeted objectives.

Tremendous scope is there to forge ahead!! There is, thus, an urgent need to give a fresh fillip to the development of storage as agribusiness continues to show strong potential for growth and enhancement of farmer livelihoods, especially considering the fact that agri-warehousing facilities so far are largely fragmented, with the majority of warehouses owned by traders and processors involved in the agriculture trade.