Agriculture, Poverty and Economic Development in Asia

Feature | 11 April 2013

Agricultural value chains that involve smallholder farmers have the potential to become an important tool in the fight against rural poverty in Asia and the Pacific.

Rising demand for high-value crops and processed agricultural products is expanding market opportunities as never before for farmers and agribusiness entrepreneurs.

This wave of change in food retailing has significant implications for reducing rural poverty and promoting inclusive growth if smallholder farmers-typically working one or two hectares-can participate in agricultural value chains to achieve higher prices, lower costs, and better market access.

Development practitioners are closely watching these trends for their potential not only to reduce poverty but also promote inclusive growth and enhance food security.

"A seismic shift is happening in the way food is produced, processed, and marketed linked to changing diets and consumer demands for safer foods, and preferences for organic and fair-trade products."

- Andrew Brubaker, Evaluation specialist

Evaluation specialist Andrew Brubaker says that unfolding trends in food retailing-such as the proliferation of supermarkets in parts of Asia-are opening an exciting range of possibilities for including the poor in agricultural value chains. "A seismic shift is happening in the way food is produced, processed, and marketed linked to changing diets and consumer demands for safer foods, and preferences for organic and fair-trade products," he says.

Brubaker is the principal author of a new sector evaluation study, Support for Agricultural Value Chain Development, which recommends that the Asian Development Bank (ADB) and the wider development community increase support for pro-poor agricultural value chains.

Rising interest in agricultural value chains

Interest in agricultural value chains as development tools has been rising since the 2008 global food price crisis.

"There's increasing recognition among governments and development practitioners that value chains can contribute to growth in agriculture," says Brubaker. "And if small farmers and agribusinesses are able to participate, they can help reduce rural poverty."

Agriculture still makes a significant contribution to developing economies in Asia and the Pacific, although this varies from country to country. But the trend is for its share of the overall economy to decline, while services in many of the region's countries are on the rise.

The two sectors, however, are closely knit: food produced in the region's farms is processed, packaged, transported and sold through a series of passages involving the service industry.

"So strengthening agriculture's links to services through value chains can contribute to economic growth in agriculture and create more jobs in both sectors," says Brubaker.

Removing barriers for the poor

So far, support for the development of agricultural value chains from policymakers and development institutions has been rather fragmented. Brubaker believes a more comprehensive approach is needed, particularly to identify and remove barriers to the participation of the poor and vulnerable groups.

"Their participation isn't a given," he says. "In fact, the means for achieving the main goal of value chains-to generate profits by meeting specific market needs-may be in conflict with the interests of the poor. So some value chains will offer more development opportunities than others-and we should focus on these."

To enable the poor to participate, ADB and other development institutions can provide support to build skills in areas such as financial literacy training, and the access of small farmers and agribusinesses to credit, which has been a major constraint so far.

From a policy standpoint, says Brubaker, more thought needs to go into including agricultural value chains in rural infrastructure, such as positioning rural roads in high-value, crop-production areas to link them to strategic commercial markets.

The evaluation study highlights the importance of identifying markets and private sector partners in the design phase of projects. For example, the successful development of the organic tea value chain in Nepal was due largely to the Eco-Tea Cooperative identifying a premium market and developing the production and processing activities needed to meet market requirements.

Expanding agricultural value chains

A key recommendation of the study is that development institutions look beyond producers-currently the focus of support for agricultural value chains-and put more emphasis on the other links, such as processors and retailers that can help smallholder farmers enter the value chain.

"With the right support, the development gains of agricultural value chains could be very considerable," says Brubaker. "But, looking ahead, there's more to learn about them."