Unity is strength
The irruption of new players in the global commodities trade, greater consolidation of the multinationals, and the effects of climate change are forcing agricultural producers in Latin America and the Caribbean to rethink their strategies for minimizing risks and maximizing results on a sustainable basis. Realities and opportunities Although the research and development (R&D) investments of the “Big Four” (Bayer-Monsanto, ChemChina-Syngenta, Dow-Dupont, and BASF) achieved scientific advances that transformed global agriculture, expanded the agricultural frontier, and increased yields, producers face a dependence on technology and prices that is difficult to mitigate. Although in grains, companies like China’s COFCO or Japan’s Marubeni challenge the power of the ABCD (ADM, Bunge, Cargill, and Dreyfus), and demonstrate the strategic importance of ensuring the supply of commodities for some countries. In this fight, it is likely that corporate acquisitions will continue, or that new commodities platforms will be developed, creating opportunities for groups of producers, cooperatives, or business associations. Finally, the effects of climate change (rains, droughts, frosts, floods, cyclones, reduced aquifer flows, and new diseases) are affecting the producers’ profits, particularly in Central America where the narrow strip of land between two oceans makes climatic distortions even worse. Various ways to partner It is an historic reality that agricultural producers take the greatest risks but capture the smallest piece of the pie because of their fragmentation, difficulties in accessing financing, and minimum added value. However, producer partners in cooperatives that adapted to the dynamics of the market, through internal transformations (including advances in the management of corporate governance), were able not only to improve their incomes, but also to become part of a sustainable business, like Copersucar in Brazil, Conaprole in Uruguay, ACA in Argentina, FNC in Colombia, Colonias Unidas in Paraguay, or Dos Pinos in Costa Rica. In the case of independent larger-scale producers, although they will be able to maintain a certain individualistic profile internally to obtain efficiency and productivity, improving the external profitability is a must. They could take their inspiration from the spirit of cooperatives to create partnerships leveraging their combined volume (with increasing strategic value) and obtaining better conditions, or even process it for greater added value. For example, in Argentina, the 30 partnered producers of Bio4 transform their own and third-party corn to produce ethanol, and the “L” Group partners to sell milk. Similarly, in Mexico, the partnered producers of Proaoass and Gradesa export bread wheat or durum wheat. Although the greatest challenge for farmers under this model was to remain united, and in some cases to delegate the management of the new business to third-party professionals, they were also focused on obtaining better economic results, and also to develop a platform to start new businesses and obtain market intelligence. Looking ahead It is likely that differences in results among producers of a similar scale are due to: (1) more collective than individual actions; (2) a more business-like profile for sustainable production; and (3) the management of individuals or teams that applied the best technology packages. Considering that quasi-state companies, and sovereign funds from Asia-Pacific and Middle East countries are seeking alternatives to ensure the food supply, soon it would not be utopic to think that networks of partnered producers or cooperatives may develop strategic alliances to have their own ports, freezers, or powdered milk plants. Moreover, since these investments require long-term financing, it would not be unrealistic to think that development banking will be financing these projects. As Seneca said: “It is not because things are difficult that we do not dare, it is because we do not dare that things are difficult.” Subscribe to receive more content like this! [mc4wp_form]
Sustainability boosts agribusinesses
The gap between companies that do only what is essential in managing sustainability versus those who are already capturing its benefits could soon become an irreversible gap that buries some but catapults others.
Why is social inclusion good for agribusiness?
By 2050, a 60% increase of food production will be required, with only a 12% increase in arable land. Considering the social and demographic implications for agricultural producers, finding solutions to include them in production chains is a must. Latin America and the Caribbean region is the largest net exporter of food worldwide. Furthermore, the region has a third of the global fresh water resources, more than a fourth of high-to-medium potential production lands, and around 40% of biodiversity. However, the region has 14 million small-scale family farming, in vulnerable situation, who occupy 80% of the farms, produce 35% of lands, and provide between 40% and 50% of food, according to the study “The Next Global Breadbasket: How Latin America can Feed the World”. Gaps among agricultural producers Whether to raise cattle in Paraguay, grow coffee in Colombia or soy in Brazil, all kinds of agricultural producers are involved in the process, from large businesses to small producers and smallholders, including cooperatives. Although there are also intermediary actors, like in Argentina or Uruguay where larger scales are achieved by leasing lands. This is an already proven business model where the producers are not necessarily land owners. However, among these different types of producers there are gaps that are increasingly evident in terms of scale, access to financing and markets, and technology application. This issue is even more evident among small producers: only 5% has access to formal borrowing, and the continuous fragmentation of land ownership due to the inheritance factor (many times resulting in flawed titles) works against them when trying to achieve minimum scales. The key factor of this gap arises from the climate change effects (which is more evident in Central America due to the narrow distance between both oceans) that, together with scarce and expensive financing, price volatility, increasingly sophisticated technological advances, and climate insurance limitations, impact family farms income. As result, younger generations choose to migrate to large urban centers instead of continuing working in family farms, and thus an important social structure of rural communities keeps on deteriorating. In Mexico alone, the number of people living in rural areas decreased from 57% in 1950 to 29% in 1990, and 22% in 2010, according to the Instituto Nacional de Estadística y Geografía de México (Inegui). David and Goliath’s tale Meanwhile, the consolidation of producers could help the so-called “new generation of cooperatives” and other association forms to achieve larger production volumes to leverage their negotiation power. Along these lines, geopolitics and the global struggle to supply commodities continue being strategic for certain countries, and could become an opportunity for producers. The entry of the Chinese company, COFCO, after acquiring Nidera and Noble Agri, or the purchase of Agro Amazonia in Brazil by the Japanese Sumitomo Corp., are proof of this situation. While on the other side of the chain, if the regulating entities approve the mergers of Bayer-Monsanto, Dow-Dupont, and Syngenta-Chemchina, these companies would control 60% of the seed/biotechnology business, and 70% of the agrochemical industry. How to promote inclusion in production chains So, what can be done to promote inclusion in production chains? While some companies focus their acquisition strategies to purchase commodities from large-scale producers, other companies seek to develop their smaller clients, not only driven by a more social approach, but also because according to FAO, they have a productivity growth potential of 30% to 50% in sugar cane, dairy, and cattle production. To close the productivity gap, a likely and sustainable solution for small producers is long-term financing, provided by investment banking —through trust funds or similar vehicles—, in association with anchor businesses assuming part of the risk and supporting them with technical assistance programs. An example of this trend is the structured financing implemented by IDB Invest (formerly known as Inter-American Investment Corporation) and the International Finance Corporation (IFC), together with ECOM —a global coffee business— and Starbucks for coffee producers that have been affected by rust disease in Nicaragua. This article was originally published at the Huffington Post. Subscribe to receive more content like this! [mc4wp_form]