Value Chains for Nutrition and Smallholder Income

Maximo Torerom.torero@cigar.org

Christoph SängerSaengerC@ebrd.com

Market failure focus

Goal: making commodities markets function for the poor at local, regional, and international markets by:

• Releasing constraints to participation • Enhancing benefits from participation (better income

and nutrition)

Major Market Failures:• Externalities (+/-)• Merit and demerit goods• Public goods• Information asymmetry• Monopoly (monopsony) power• Government failure

inefficiency and high

transaction costs

But

• The Challenge: Income growth and market development are not sufficient to improve nutrition and food safety.

• The Opportunity: Can value chain research improve market performance but also for nutrition and food safety?

Income Growth Can Reduce Child Stunting, But Other Actions Needed

A 10% increase in GDP/PC

leads to a 6% reduction in

stunting

Source: M.T. Ruel and H. Alderman (2013) Nutrition-sensitive interventions and programmes: how can they help to accelerate progress in improving maternal and child nutrition? The Lancet 6736(13): 1-16 (DOI: 10.1016/S0140-6736(13)60843-0).

5

Income Growth Can Increase Risks of Overweight and Obesity

A 10% increase in GDP/PC

leads to a 7% increase in overweight

and obesity in women

Source: M.T. Ruel and H. Alderman (2013) Nutrition-sensitive interventions and programmes: how can they help to accelerate progress in improving maternal and child nutrition? The Lancet 6736(13): 1-16 (DOI: 10.1016/S0140-6736(13)60843-0).

Ideal US China Bangladesh

Starchy Staples

48 31 49 80

Legumes & Nuts

22 5 3 4

Animal & Fish Products

10 14 20 4

Fruits & Vegetables

9 7 9 2

Fats & Sugars

11 43 19 10

Total Calories

2200 Too many Too many Too few

Income Doesn’t Lead Diets Towards Ideal Nutrition

(shares of daily calorie consumption by food groups)

Source for “Ideal” shares: Thompson and Meerman, FAO, 2013

Inputs into production

Food production

Food storage and processing

Food distribution and transport

Food retail and labeling

Value Chain Approach

Consumer

Producer

Supply side

Develop and test solutions

Demand side

Characterize diets, market access and constraints to

consumption of nutritious, safe foods

Test solutions to improve demand for nutrition and

safety along the value chain

Identify production and market constraints to

improved nutrition and safety

Example: Increased seasonal availability of

fruit

Example: Nutrition education delivered by vegetable seed

supplier

Key topics we are focusing

• Nutrition and food safety

• Contract farming

• Farmer groups

• Access to finance

• Access to micro-insurance

8

Key topics we are focusing

• Nutrition and food safety

• Contract farming

• Farmer groups

• Access to finance

• Access to micro-insurance

9

Value chain example: the Vietnamese dairy sector

• Archetypal for high-value agricultural markets in DCs

• Domestic demand for dairy products grows quickly

• Atomistic supplier structure• Buyer holds natural monopsony• Sector is dominated by formerly state-owned

Vinamilk

Existing contractual arrangement

Factors constraining farm productivity:

“Usual suspects”: infrastructure, access to inputs/credit, skills

But also contractual design and institutions?

— Lack of transparency: quality is assessed by the company

x 365

x 52i

Research project and research questions

Research questions:

Does provision of 3rd-party quality assessment…

…make farmers produce more and higher quality milk?

…increase welfare levels of farming households and of the dairy processor?

Field experiment:

• Through collaboration with Vinamilk we could work with 400 contracted dairy farmers in “natural” setting

Experimental Design

i?!

Treatment farmers (n=100) receive vouchers for zero-cost milk testing in independent lab

B-samples taken & transported to independent laboratory

Vouchers executed whenever farmers challenge the company’s testing results

Company does not know when vouchers are executed Eliminates opportunistic behavior

• Independent quality verification leads to higher input use, more output, slightly higher household welfare in treatment group compared to control group

• Independent quality verification enables the processor to signal its type “fair”

• More transparency in the dairy supply chain– Small-scale dairy farmers gain– Processor gains from lower per-unit transaction

costs when procuring raw material

Main results

15

• Role for the state in establishing infrastructure for third-party quality verification?

• More competition among buyers of milk would help – Improve contract terms for small-scale farmers– Race to the top with respect to transparency

Policy implications

Health benefits and Agricultural contractsExperimental evidence from Northern Senegal

• Can health-related incentives be used to overcome contract enforcement issues with small-scale agriculture suppliers?

• Can existing value chain logistics be leveraged to increase health conditions in remote locations?

Health benefits and Agricultural contractsExperimental evidence from Northern Senegal

• Semi-nomadic milk producers, very remote location

• Milking efforts by women, cash collected by men

• Highly unreliable milk supply, particularly in dry season

• Extreme level of anemia prevalence for children in the area (82% anemic, 15% severe anemic).

-.1

0.1

.2

Jan

27

Feb 1

7

Mar

10

Mar

31

Apr 2

1

May

12

Jun

2

Jun

23

Jul 1

4

Aug 4

Aug 2

5

Sep 1

5

Note: Impact parameter estimate for separate impact estimates ran each week. Lowess smoothing function used across estimates. Dahes lines are 95% confidence interval

Note: Generalized propensity score estimate used to deal with endogeneity of treatment intensity. Green and red lines are 95% confidence interval

Clear and significant effect on milk delivery during dry seasonOrder of magnitude: 10 percentage point (=30%) higher contract fulfillment in treatment group in early June.

Positive dose-response effect on children’s health (Hemoglobin level)Order of magnitude: 1.25 g/dl Hemoglobin increase for 16 weeks of continuous fortified porridge intake.

Preliminary results

Summary

• Addresses market failures to release constraints faced by smallholders but to enhance benefits

• Although Increased calorie production and incomes is not sufficient and no longer seen as ag’s only role

• We also need to increase diet diversity and consumption of nutrient rich foods

• Is central to identify barriers to greater consumption of nutritious foods

• Tests market solutions to provide better nutrition and food safety