Community forum: Horticultural Crops in AD Situations

Posted on 15 Aug 2007 by Marcus

In many AD projects we see attempts to introduce very high value produce to communities, usually with the intention of exporting it. Examples include coffee, cocoa and palm heart in Latin America, and non-Timber Forest Products in Laos (that are exported to Thailand, Vietnam and China).

I would submit that horticultural crops are usually discounted during project design. Presumably designers are thinking

1) Distribution of horticultural crops is expensive and postharvest losses are high
2) Designers have to concentrate on the crops with the maximum cash yield per hectare in order to compete with illicit drug crops

But are people too quick to discount horticultural crops? Does anyone have any successful or unsuccessful experiences in this area? Or does anyone find the motivation for growing the very high-value export commodities to be unpersuasive?

Posted on 16 Aug 2007 by T. Gibson

In AD Projects I worked in SE Asia, the Projects introduced horticultural crops in each of the four countries. They were sometimes successful in Thailand and only partly successful at the village level in Vietnam, Laos and Myanmar. In Thailand, success seems to me to have been associated with a long-term commitment by the Projects with active Government support to initially subsidise commercial production and to search for and assist with marketing. Thailand also had the advantage of good transport infrastructure.

In the other three countries, horticultural crops were accepted by villagers as backyard supplementary food if privately owned (not if communally owned) but there were generally few commercial prospects; generally it was considered that commercial outlets were too far to be economical and inputs too costly. There was also competition from cheap Chinese sources of standard horticultural crops when the potential markets could be serviced by Chinese supplies. However, in Myanmar, there was one successful, large horticultural enterprise for ex-opium farmers which was funded and executed by a private organisation.

So, from my experience, to answer Marcus’s questions:
Project planners have considered horticultural crops as a partial replacement for opium production. There have been some commercial successes and some acceptance as backyard supplementary food production. I find the argument for high-value export horticultural crops to be persuasive if the following conditions are met: there is a ready, high-value market available for that horticultural item; the production in the long-term must be economical after accounting for logistic costs; there must be a long-term commitment by the Project in initially supporting production and marketing the crop; and villagers do receive a fair share of the proceeds (there must not be excessive rent-seeking). All of these conditions are seldom met in my experience but when they are there can be success.

Incidentally, I do not share the view that AD crops must be as economical per unit area of land as opium poppy. In the situations I have been in, land is not the major constraint, but labour and capital are. I think return to household labour is a more valid criterion on which to judge the validity of a crop to replace low-input opium production.

Posted on 16 Aug 2007 by Marcus

I have some perspectives on this topic, as a result of my research on the Royal Project, and also on the marketing systems in other drug-crop producing and/or mountainous regions.

With the Royal Project, horticultural crops have been enormously important. It’s only in the last few years when non-horticultural crops have started to provide a significant income (basically, coffee), and we are talking about a project with more than 100,000 beneficiaries. What is significant about the Royal Project, though, is that there is a marketing operation which looks, to all extents and purposes, like a private sector contract-farming company, with a network of highland collection centres, a very well-equipped, HACCP and GMP-certified packing house in Chiang Mai, and many distribution channels. They have their problems (who doesn’t) but overall the level of sophistication throughout the process is very high, and of course the commitment of capital is high, too. It wasn’t always like that- for nearly 20 years things were much more basic. But even when there was very little infrastructure there was always a system in place to limit the risk of the farmers and increase the certainty of the receipt of income. This takes capital.

Another example of successful use of horticultural crops in AD is ABAPI in Chapare in Bolivia, where they produce and market bananas and pineapples- more than $2m per year worth. They, too, have a very good setup, where each group of farmers has a good packing and collection facility, and there is proper central corporate management. This is necessary to keep the quality high enough and to deal with large buyers. (On the topic of value, the manager of ABAPI, an ex-cocalero himself, assured me that banana and pineapple earned more than coca when marketed through ABAPI.)

So I find it very plausible that, as Trevor says, horticultural crops require a lot of investment and long-term commitment. I would only add that quality organization and management are probably also necessary.

Posted on 16 Aug 2007 by Adriana

The fact that most of the
exported fruits and vegetables are produced by small farmers certainly suggests a poverty reducing
impact, but it is difficult to make any definitive statement without better information
on the number of beneficiaries, the characteristics of the growers, and the size of the gains.
In South America, fruit, vegetables and flowers many times are preferred over field crops for several reasons. Firstly, unlike grains and cotton, fruit and vegetables are generally not subjected to the grossly unfair competition from heavily subsidized imports from the EU and USA. Secondly, labour-intensive fruit and vegetables are not threatened by the economy of scale such as that favors soybean from the Americas, the
size of the farms varies across crops depending partly on the economies of scale in
production and processing. Thirdly, competitiveness of imported perishable fresh fruits, vegetables and flowers from overseas is lessened by the added cost of long distance transportation. Fourthly, local tastes and preferences have given rise to robust growth in demand for common fruits, vegetables, flowers, herbs and spices. Many more new species continue to emerge to contribute to further growth and diversification as some old favorites of the 1970’s and 1980’s such as apple, citrus, grape, pineapple and green corn are leveling off.
The future appears bright for these new, high-value, intensive cropping systems, which are an integral part of South America’s general economic development. Regional trade liberalization brings further opportunities for intensification and diversification of cropping systems to remote border regions. However, these intensive cropping systems require public investment in good market access and supporting infrastructure. There are two problems requiring attention that are unlikely to be taken care of by market forces. First is the impact of intensive cropping systems on human health and the environment, especially those arising from abuse and overuse of fertilizers and pesticides and soil erosion on steep slopes. The second concerns cropping systems in less favorable environment that are unable to convert to higher value crops because of limited access to market. Both issues await innovative contributions from crop science.
Nevertheless, in order to examine the impact of horticultural production on farm income, it is useful
to examine the gross margins of fruit and vegetable production relative to the most common
alternative. The gross margin is defined as the value of output minus the cost of variable
purchased inputs such as seed, fertilizer, pesticides, and hired labor (the implicit cost of
family labor and land are not deducted).

Posted on 17 Aug 2007 by Marcus

Adriana, those are some very interesting points about the trade climate for horticultural crops.

In assessing the economics of these crops, though, the gross margin is potentially misleading. The price should double or triple from the farm gate to the wholesaler, as the produce goes through the typical processes of being sorted, graded, packed, and aggregated into larger groups of better-handled produce. Of course the price goes up, but so does the labour and capital cost (because of the greater investment in postharvest systems needed to capture these greater prices). I think it is essential to define how much of the value chain the farmer will occupy, and charge the profit for the costs of occupying the value chain. This is the critical question with most crops, if not all- to what extent can the farmers move up the value chain?

It would be much harder to do, but what would be really interesting would be to figure out the margin (after all costs) for a group of horticultural producers, if they had a similar amount of infrastructure to a typical Andean coffee or cocoa-producing group. With many of he ones I have seen, each household either has, or has access to, some suitable postharvest technology (like drying areas) and then there is a reasonbly well-equipped central area for packing and the most expensive postharvest processes. While they are clearly not modern like the Royal Project’s packing centre, I believe that a similar level of investment in horticultural postharvest process would allow pretty good quality produce to come out of the group. It would be very interesting to compare profit from such a setup to that from a more traditional group focusing on high-value export crops.