ARO-INDUSTRIAL LINKAGES

Arnoldo K. Ventura

December 4, 1996

Impediments in agricultural production and technological weaknesses in agro-industrial processing factors which affect the relationship between farmers, especially small farmers, and processors, have not been

sufficiently included. This paper was an attempt at examining these linkage factors in Jamaica, to uncover their impact on the agri-industrial system This effort is of national importance because small scale enterprises remain the main conduits for food, feed fiber and the raw material for other agricultural based industries in Jamaica. There are over 100,000 small farmers on the island and some 70 or so processors. They produce a range of products, including sauces from herbs and spices, canned ackee and calalloo, tinned juices and processed meats for the local trade and export. A number of foreign speciality and ethnic food markets are also served by the system, and excesses from traditional crops, such as papayas, bananas and mangoes, are processed for export.

Relationship between small farmers and processors has largely been one of suspicion, resulting in severe distortion in the system and the unnecessary importation of an inordinate amount of material for agro-processing. The social factors affecting the agriculture manufacturing conjuncture on the island have deep cultural roots in slavery and social division, aggravated by poverty, dense population and competition for survival, in one of the most dualist economies in the world. Added to this problem is the in-efficiency in agricultural production, caused by such factors as in-hospitable and in-fertile small farming, inadequate technology and insecurity among farmers Production efficiencies are also low in many agro-processing firms. Many agro-processors are small opportunistic operators, who function on an intermittent basis, depending on the availability of raw materials. Their capital equipment is old and their skills need upgrading. If agro-industry is to play its full role in the development of the island, as anticipated in the recently promulgated industrial policy, significant improvements are needed not only in agriculture and agro-processing, but also in the dynamic reciprocal relationships between these two sub-sectors. The Small Farm Sector understand the present linkages, the disposition and experiences of small farmers and processors need to be elaborated and analyzed. Small farmers have on the average only 6 acres (or about 2 hectares) of land, of the worst quality, often fragmented into small parcels and situated in inaccessible areas on hillsides. Consequently, infrastructural connections are usually very bad, and they are cut off from the main stream of the economy. Land tenure arrangements are tenuous and often they find themselves in competition with larger farmers. Efforts to hedge against crop failures, to provide term cash and to maintain some form of old age pension, complicate the production patterns and economic behavior of small farmers. The Agro-processing System series of studies have identified two major inter-related factors which limit businesses in the agro-processing sub sector. They are the insufficient supply and the high price of raw material. In this connection it was observed that several fruits for processing were generally picked from wild trees, which severely limited the availability of these raw materials. The general characteristics of processing plants, which are of importance to this exercise, are as follows: Firm considered large by Jamaican standards are small in global terms, Serials from middle men and higglers, few processors have entered into long term contracts with selected farmers, pursed with in activity, Some of the large processors Import raw materials for repackaging, approximately 50% of the raw material for local processing is imported, most factories operate on a single shift only

is the insufficient, irregular, partly inadequate and costly raw material supplies, which is directly related to low level of agricultural production. Both sets of these hindrances are conditioned by their relationships among farmers and between farmers and processors. Discord between farmers and processors is surfacing as crucial to the improvement of agro-industrial development on the island. The market relationships in the Jamaican agro-food systems are complex, volatile and mainly ill informed. Few are direct contacts between farmers and end users. The bulk of family farms are linked to end users through middle men such as agents of exporters and processors, as well as, higglers, who supply the domestic fresh market. Only a few family farmers belong to producers marketing organizations (PMO), or have contracts with processors, thus forming direct links with the final users. Certain elements have a strong influence on the relationships between small farmers and processors. A few will be mentioned here. Lack of information links among the various parts of the system are often short term verbal agreements. These agreements are based on insufficient information about the conditions of the final market and related matters. Awareness of volumes of supply and range of prices indifferent areas is low, and often contradictory. This fuels misunderstandings and ill will among all concerned. Differentiated produce on large farms, products are not differentiated according to the specific qualities and varieties, appropriate for separate markets. Different markets are supplied with the same bulk products. Since there are generally few outlets for a given product, in a given community, at a given moment, and since most of the products are perishable, sales in bulk is the rule, and sales according to use the exception. So even if processors require lower quality, they often have to compete with the general demand, and higher quality, and hence the prices, of the domestic fresh market. Pricing at normal levels vary dramatically according to the region and time of the year. Differences of up to 33 fold can be found. Some of these fluctuations can be explained as seasonal differences, but others cannot be so explained. Prices bear no relation to production, nor availability, and seem to be determined by the whims of higglers and middlemen. Suggested farm gate prices, published in the local newspapers, are related to the export of fresh produce. But these export prices seemed to have little effect on local marketing, since hardly anybody knows what they represent. The reasons for these dramatic ranges include geographic isolation, which increases the difficulty and cost of transportation, lack of links between the family farms and different possible outlets, and lack of information on market conditions in different parts of the system. These occurrences result in an extremely fragmented market, with juxtaposed surpluses and shortage situations, and possible losses of profitable outlets for farmers and of profitable supplies for the processors. Organized marketing abolished long term relationships guarantee more secure marketing of farm products and a better supply for processing plants. Such contracts are however rare and confined to a few commodities such as carrots, papaya and chickens Where agreements do exist, they are often verbal, and usually limited to very large growers. Some producers marketing organization and large farms, steadily satisfy specific demands, such as those for export, hotels and supermarkets, generally under verbal agreements. Attempts to establish firm contracts have frequently failed, both from the side of farmers and from the side of processors. These failures are one of the most commonly expressed reasons for mistrust between farmers and processors. Enforcement and special market conditions are two reasons forwarded for these failures. Even when contracts are written, bilateral commitments between processors and farmers are difficult to enforce. Wide fluctuations in the market do not encourage long term pricing in advance marketing. Temporary market conditions, such as high prices for produce, or large surpluses of products at processing plants, often cause agreements to break down. The highly individualistic nature of many Jamaicans also affects marketing. Cooperatives are often seen from a political rather than from an economic point of view. There is a surprising scarcity of farmers marketing organizations, or similar collectives, even though the short comings of individual marketing are patently obvious, and the success of the Commodity Board System stand in starkest to individual operations. Farmers associations demonstrate that collective forms of marketing can work to the overall benefit, if proper leadership, organization and outlook are found. As a matter of fact, a more collective spirit at the community level would do a lot to permit speedier and longer lasting success in the contemplated poverty alleviation programs. Moreover, it would do much to reduce periodical larceny , as the origins of all produce for sale would have to be verified by the central purchasing entities which would exist. Overall Analysis and Conclusion from the Case Studies. A number of case studies were summarized in this report to demonstrate, from empirical evidence, the relationships between small farmers and small processors, and between small farmers and large manufacturers. Although, it was clearly observed that each commodity has its own unique features in the grower/processor linkage, some features and requirements have emerged as important throughout the system and must be taken into account in any effort to strengthen agro-industrial linkages. These are as follow: Small farmers insecurity small farmers rely mainly on rain fall agriculture to produce crops. Their unreliable behavior towards contracts and processing reflects the insecurity associated with this reality. They understand a bligh as to seize the first opportunity to sell perishable produce, especially when higher prices can be had on the fresh food market. Higglers and other wholesalers exploit these insecurities, making it difficult for processors to compete, especially in times of scarcity. In fact, what is often sold for processing is rejected produce from the fresh or export markets. It was also observed that cohesiveness among small farmers evoked beneficial accumulative effects. Collectivism not only affords vital benefits, such as critical masses purchasing inputs and organizing transportation, but tight farmers groups create stronger negotiating positions, and give farmers a greater sense of power, control and hence security. Also they provide a net work for disseminating information and generating and sharing knowledge. Better discipline can be imposed within farmers groups, and the effects of incentives can more easily be applied and monitored. There are various ways in which farmers can be organized, but these will not be considered here. However, it is important to note that the most effective organizations draw their successes from providing more equity, income and security for farmers. These can be accomplished through democratic operations and the provision of up to date information to farmers, which is vital in decision making and in risk taking. Most processors agree that small farms cannot be of much benefit to the processing industry unless they form part of larger groupings, or collective systems. Similarly, processors can also bind together to become more reliable and reasonable partners in the agro-industrial enterprise. Raw materials going to a cooperative, or a well organized processing system, is not enough to enhance agro-industrial development. Farmers must produce raw materials efficiently, and processors must upgrade their technology, to make the best use of raw materials, to set the foundations for a competitive industry. Farmers must produce raw material efficiently, to allow processors to generate surpluses to continue to buy raw material at prices that allow them a decent living. Improving quality and uniformity must be objectives of the system, and this will depend on more relevant R&D and extension work. Competitive businesses cannot be established on the harvesting of scattered uncared for fruit trees. Apart from the cost of collection and transportation, there is no control over the varieties, some of which cause difficulties in processing. Growing orchards specifically for processing is an imperative and this will require close working relationships between farmers, processors, R&D workers and financial institutions. The changes required to gain efficiency in the agro-industrial system clearly are outside the competence o individuals, individual enterprises, or institutions, and there has to be an unified approach, including Government, the private sector and organized civil society, for success. Unpredictability of processors: Processors tend to move from one product to the other, or simply to no product at all, depending on their cash flow situations and their perceptions of the availability of raw material. The regular demand for farmers commodities, which ensues, creates a great deal of in security mongers, and they tend to sell at the first opportunity, irrespective of contracts. A better strategy would be for small processors to cooperate in processing to enable the purchasing of a range of raw materials from a particular area, on a regular basis. This would build confidence among the farmers, especially if they were allowed to do some preprocessing as part of the agro-industrial endeavors, and there by add to their incomes. Information: Farmers and processors need a range of information, chief among which is marketing information, from both domestic and international sources, as well as, information about the availability of relevant R&D results, extension services and financing. Proper marketing and pricing require up-to-date information about the availability of produce across the island and their movements. Competition for raw material is fierce and some times disruptive, forcing speculative procurement, which affects the amount of working capital that is tied up in raw material. Relevant information will help both farmers and processors in the negotiations and in at tenuating the scope of their expectations, there by making for better understanding and cooperation. Categories for Change: A Number of recommendations were made but will not be repeated here, except to say that more confidence has to be built in to the system and this must translate into higher income on all sides, for the system to show improvement. Observations made here revealed that the relationship between small farmers and processors have a profound effect on a agro-industrial vigor on the island. These linkages are however complex depending on the nature of the produce, these are so and prevailing weather conditions, education, socialization and experiences of the farmers, the intent and vision of processors, as well as, the culture and economic climate predominating on the island. This report has indicated that there is much to be gained from a deeper understanding of the various parameters affecting linkages and a serious exploration of convenient ways to affect change. However, there is enough information to immediately institute and follow requisite exchange, and there by create a learning and innovative environment. strategy for improving the agro-industrial system must start with the production and delivery of materials in reliable quantities and specific qualities Out dated production methods and inadequate organization cannot be expected to create the necessary increases in efficiencies and quality. Gathering raw material from wild plants is not a reliable basis on which to establish and maintain supplies for special markets. Orchards must be established and become subjected to care and husbandry to produce crops especially tailored for processing. Providing the qualities, and even entities of raw material required, cannot be left solely to the farming community. This clearly has to be a jointed effort between farmers, processors, the R&D community and the financial system. Processors must take a more strategic view of the welfare of farmers. They must organize themselves to offer the best prices and continuity of purchases, which will enable farmers to bank on stable and reasonable incomes. The recently formed agribusiness Council is ideally placed to help facilitate the transformation of the industry. This body must set itself the task of gathering and disseminating the most up-to-date information on what is happening in the sub sector must act as a catalyst for expeditious action in government agencies, such as Jamaica Promotions Limited (JAMPRO) and the rural agricultural Development Agency (RADA) as well as, a reliable full crum for private sector interactions. An annual assessment and report of progress in the agriculture/agro-industry inter phase must be prepared and shared with all the decision and policy making bodies in the sector. On knowledge, the subject or I can thrive. A purely market oriented approach will not be sufficient to remove the bottle necks in the agro-industrial sector. Government must take the lead to ensure resolution of the chronic problems identified, so that market failures can be minimized. Government, however, cannot legislate the behavior of individuals, especially when they are struggling to survive in relatively hostile environments. Individuals must be moved by demonstration that there is more to be gained by collaboration and cooperation, than by suspicious individualism.

Thanks for your attention.