From Farm to Fork:
5. Tipping Points: Saving Food through Economic Efficiency
Across many different value chains, one thing is consistent: the less that food is worth, the more susceptible it is to losses. Reducing food loss requires resources, either in the form of capital expenditures or increased operating costs. These costs must be outweighed by the expected benefits of loss reduction. Therefore, the more profitable a crop is, the more resources that are available to ensure it makes its way from farm to fork.34
Three main levers exist to improve the economic efficiency of agricultural value chains (Figure 5). Supply chain barriers influence each of these levers in different ways:
- Reduced price volatility: Supply fluctuates dramatically in agriculture, particularly in developing countries. In years of oversupply, prices drop. As a result, the cost of harvesting and getting food to market can exceed potential revenues. Solutions to reduce volatility include stable policy and reduced export barriers. For example, when Zambian maize experiences a “bumper harvest” of 30% above average, closed borders drive a 50% reduction in prices, whereas open borders result in only a 26% drop.35
- Increased prices: Aside from volatility, low average prices can also drive food losses. European importers of Kenyan avocados lack visibility on the level of quality they will receive, due to the existence of unofficial exporters. As a result, they apply a price discount to the origin in general. If an improved system of grading were introduced, price segmentation could be created.
- Reduced costs: The journey that Indian tomatoes take from farm to fork is extremely fragmented, involving regional and local marketplaces. The high number of touchpoints and middlemen add costs along the way, meaning that margins for each player become slim. As a result, investment has been less available for technologies such as plastic boxes, which reduce transport losses by up to 75%.36
Figure 5: Three Levers Can Free Up Resources to Reduce Food Loss
Source: Bain & Company analysis
It is important to put food-loss-reduction efforts into the broader context of economic efficiency. As governments and companies have limited resources, investments to improve supply chains must be made in ways that will maximize the long-term positive impact on society.
If investments do not allow companies and, subsequently, entire value chains to reach sustainable profitability, governments will expend enormous energy and resources with no momentum developed.
One example is the low success rates of efforts to introduce grain storage technologies in sub-Saharan Africa. Implementation was often done without a clear path to financial sustainability, and the focus on enhancing storage often overlooked missing economic incentives.37
If, on the other hand, policy-makers carefully coordinate efforts as part of a broader strategy to promote promising, high-potential industries, tipping points of profitability can be reached. When this happens, the private sector is able to reinvest retained earnings into the industry – including loss reduction efforts – and a virtuous, self-promoting cycle of development is triggered (Figure 6).
Figure 6: Virtuous Cycles Are Triggered when Profitability Is Achieved within an Enabling Environment
Source: Bain & Company analysis
A successful example is Kenyan avocados. In the early 1990s, the Kenyan government liberalized the fertilizer market, leading to a 14 percentage-point increase in fertilizer use among smallholder farmers. Resulting yield increases, combined with government investment in the Nairobi-Mombasa highway and the provision of reliable power at Mombasa ports, helped to allow global shipping companies to invest in and introduce refrigerated containers. Beginning the cold chain at the packhouse gate increased the shelf life of exported avocados, allowing access to distant, high-value markets in Europe. Exporter profits generated from higher-end market prices are now being reinvested to help smallholder farmers improve product quality, driving further price appreciation.38
Implementation of the solutions proposed in the following sections should thus take place as part of a broader strategy to achieve tipping points within a naturally competitive agricultural sector. The work of the Forum’s New Vision for Agriculture initiative and Grow Africa partnership provides an example of how public- and private-sector actors can work together to create and implement this type of broader agricultural transformation strategy.