From Farm to Fork:
Getting agricultural goods to market more efficiently offers huge potential benefits across social, environmental and economic dimensions. Through a combination of case studies and secondary research, this report highlights the most significant supply-chain-related barriers faced by different actors, including their impact, and suggests potential solutions.
Food loss has significant negative social, environmental and economic impacts.
Globally, up to 1.3 billion tons of food is lost or wasted each year around the world, representing a massive set of inefficiencies in terms of environmental impact, hunger alleviation and economic development.1 In the case studies researched as part of this report, estimates of food loss ranged between 10% and 40%. Food loss depresses incomes along agricultural value chains, and can have particularly devastating impact on smallholder farmers. It also drives up the end prices of food, restricting access for poor consumers and contributing to hunger and malnutrition. Lost or wasted food drives approximately 4% of world energy consumption,2 20% of freshwater consumption,3 and uses 30% of the world’s agricultural land area. In 2007, the total economic cost of food loss and waste was estimated at US$ 750 billion.4
Reducing food loss will require a global effort to improve agricultural supply chains.
In North America and Europe, 40% of losses occur at the household level after consumers purchase food. In sub-Saharan Africa and South/South-East Asia, however, only 6% of food loss and waste occurs at this stage. The remaining 94% is a result of inefficiencies in the supply chain, from harvesting through distribution.5 In the past 30 years, over 95% of horticultural development funding has gone towards pre-harvest efforts such as yield increases, while less than 5% has gone to postharvest improvements.6 This flow of resources has driven important advancements in production. Now, stakeholders have a direct interest in ensuring that the increased production resulting from their efforts enjoys a smooth and efficient route to market.
Specific solutions to food loss vary across value chains, but achieving tipping points of economic efficiency helps across the board.
In the three case studies covered in this report, losses occur in different percentages at varying stages in the value chain. However, one thing seems consistent across value chains: the lower the value of the food, the more susceptible it tends to be to loss. Reducing food loss requires resources, which must be outweighed by the expected benefits of loss reduction. The more profitable a crop is to all stakeholders along the value chain, the more resources that are available to ensure it gets from farm to fork.7
Three main levers exist to improve economic efficiency of agricultural value chains: reduced volatility of supply and prices, increased end-market prices and reduced costs. If investments do not allow farmers, companies and, subsequently, entire value chains to reach sustainable profitability by pulling these levers, governments will expend a huge amount of energy and resources with no momentum developed. An example is the low success rate 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 economic incentives.8
If, on the other hand, policy-makers carefully coordinate food loss reduction efforts as part of a broader strategy to promote promising, high-potential value chains, tipping points of profitability can be reached. When this happens, the private sector is able to reinvest its retained earnings into the industry, and a virtuous, self-promoting cycle of development is triggered.
Reducing supply chain barriers contributes significantly to achieving economic efficiency.
Supply chain barriers directly impact economic efficiency. The World Economic Forum’s 2013 report Enabling Trade: Valuing Growth Opportunities estimated that reducing just a few supply chain barriers halfway to the world’s best practices could increase global GDP by 5%. The potential gains are even higher in the developing world: 12% in sub-Saharan Africa and 8% in South and Central Asia. Given the characteristics of agricultural goods and their susceptibility to supply chain barriers, the value at stake for the agricultural sector is likely even higher. For example, agricultural goods are extremely time-sensitive. Even for less perishable crops like cereals, each day of delay from harvest to market equates to a 0.8% tariff equivalent, versus 0.6% for textiles and 0.3% for pharmaceuticals.9
Impacts of the four types of supply chain barriers are felt in various ways across agricultural value chains:
Market access. Because of their health risks, agricultural exports are subject to additional regulatory controls. Overly strict standards are sometimes used as a form of protectionism, and lack of information about requirements and how to meet them mean that high-quality markets are often out of reach for developing-country suppliers. Overcoming market access barriers requires collaboration among governments, downstream actors and farmers to implement measures such as improved transparency and capacity building.
Transport and communications infrastructure. Transport costs are the most important challenge cited by developing-country suppliers in connecting to global value chains.10 The impact of poor transport infrastructure is especially pronounced for agricultural goods because of inherent characteristics such as low value-to-bulk ratios, fragility and perishability. Initiatives to improve underlying infrastructure are typically government-led, but private-sector involvement is critical in ensuring efficient allocation of resources along key transport corridors. Regulations impacting transport services should be designed to help enable competition, scale and standardization. Development of technologies to facilitate efficient movement and storage of crops is also important, and must be tailored to the constraints of specific value chains. Creative ownership models can help to overcome the challenges of mobilizing capital for investment in these improved technologies and logistical arrangements.
Border administration. Border delays have significant impacts on the movement of food, especially in developing countries. For example, the Burundi–Rwanda border adds the equivalent of 174 kilometres (km) in terms of increasing food prices; the Democratic Republic of Congo–Rwanda border adds a staggering 1,600 km.11 Redesigning border processes through streamlined government agencies, information and communications technology (ICT), and risk-based screening offer promising mechanisms to reduce delays; however, implementation requires overcoming vested interests, and strong political leadership is needed to create change.12
Business environment. Private-sector investment in commercial farming, vertical integration, transport services, food processing and large-scale retail networks allow for better logistics, improved technology and capacity building, if implemented well. Governments can take steps to create an enabling regulatory environment to facilitate these structural improvements. Modernization should be accompanied by inclusive planning, involving local stakeholders and helping those producers and traders with less competitive potential to find alternative opportunities.
Solutions differ across value chains, so a thorough supply chain assessment is a pivotal part of taking action.
Some solutions fall primarily under the purview of the public sector (e.g. infrastructure improvements, redesigned border processes), and tend to have a positive impact across multiple crops. Others are primarily private-sector-led (e.g. farmer training, logistical arrangements), and tend to be value-chain-specific. Almost every supply chain improvement, however, can only be implemented successfully through a collaborative, data-driven process:
- Prepare. Tackling supply chain barriers in a given country starts with establishing a group of public and private stakeholders with a clear governance structure. For example, the World Economic Forum’s New Vision for Agriculture initiative and Grow Africa platforms could be expanded to include stakeholders from the supply chain and transport community, as well as government representatives from ministries of trade and transport. To facilitate focused use of resources towards achieving tipping points, stakeholders should align on trade routes and crops with the highest potential.
- Diagnose. The flow of goods along these high-priority trade corridors or value chains should then be mapped, from inputs to cultivation, to distribution and consumption. Interviews can help to develop first hypotheses of supply chain bottlenecks. Their magnitude can be thoroughly assessed by gathering cost, time and food-loss data while travelling along the corridor with shipments of agricultural goods. Much of the value comes by taking an integrated look across the whole chain and understanding the interactions among stakeholders.
- Plan. For each barrier identified during the diagnostic phase, the core team can then define a long list of potential actions for reducing costs. A cost/benefit analysis of this list is important to ensure that resources are allocated where they will have the biggest impact.
- Mobilize. A project manager for improving a value chain should be chosen from a stakeholder group that is trusted by all stakeholders. Clearly-defined owners from various stakeholder groups should take responsibility for each initiative. Subowners should be assigned and milestones set within each initiative, and transparent mechanisms for tracking progress should be put in place.
Public-private collaboration is critical throughout this process, as policy reforms and infrastructure investments should aim to maximize benefits for the private sector, such as providing as much regulatory consistency as possible.
Through coordinated action, leaders from various communities can share their expertise and resources to reduce supply chain barriers in agriculture, triggering increased economic efficiency and a virtuous cycle of investment. In the long term, this will contribute to increased incomes along the value chain, improved food security and increased environmental sustainability.