1. Linking Food Market Transformation
to Improved Food Security in Asia

2. • Tom Reardon
• Michigan State University
• Talk at ASEAN Food Security Conference: Role
of the Private Sector
• 17 June 2010

3. 1. Food Security is a dinner table with
4 inter-dependent legs
a) Leg 1 is “availability” from raising farm
production/productivity.
… But this leg is necessary but not sufficient – and
without the other three legs the table will fall.
b) Leg 2 is “access” from raising household incomes
to buy food.
… I will show that about 80% of the food in ASEAN
countries is bought by only-consumers
(households not producing food)

4. c) Leg 3 is “access” to food by raising efficiency
of market supply chains to deliver food to
consumers.
…. 50-70% of consumer’s cost of food is formed
in post-farmgate segments of supply chain
wholesale/logistics
Processing
retail
For food security, raising efficiency in post-
farmgate segments is at least as important as
raising farm yields.

5. d) Leg 4 is raising “utility” of food by raising food
safety/quality/nutritiousness.
If any of the legs is not strong all will fall
together.

6. 2. Food Security is a dinner with two
important courses
a) Rice is the important base –
… it is about 50% of consumer calories –
… but is only about 10% of consumer spending on food,
… but only 8-32% of agriculture – and that share is
declining, 1961, 1980, 2007 (Timmer):
… Rice/Agriculture: East Asia: 19% 8%; South Asia: 20%
15%; Southeast Asia: 40% 32%
… Rice/GDP: East Asia: 6.8 1%; South Asia: 8.4% 2.7%;
Southeast Asia: 14.5% 3.8%
… Per capita rice consumption growth negative or trending
negative (in Indonesia, negative in 4/5 quintiles in urban
and zero or negative in top and next quintile in rural
Indonesia; India and Bangladesh showing similar trends
but earlier on path)

7. b) Food-beyond-rice (vegetables, fruit, fish/shrimp,
meat, edible oils, dairy, spices/condiments) is the
other important base
… about 50% of consumer calories in ASEAN
… 90% of consumer food spending, and
… 90% of their protein & vitamins
… 92% of agriculture in East Asia, 85% in South
Asia, and 68% in Southeast Asia.
… 4 times more income/ha to farmers than rice

8. (3) Thus – a holistic-integrated
Food Security Investment Strategy
Matrix has 5 rows + 2 columns

9. Food Security Investment Strategy
Matrix
rice Beyond-rice
1) Farm input supply
2) farming Common focus of debate –
necessary but not
sufficient
3) Wholesale/logistics
4) processing
5) retail

10. (4) The two elephants in policy-debate
room are only two wheels on the 10-
wheel truck delivering food security
a) Government is important
… as an investor in the soft and hard infrastructure as
foundation for the 10-block food security matrix
… as ONE of the policy setters for players in the food
supply chains -
… but government is a MINOR direct player in this game.
… ASEAN governments’ procurement/marketing of food
touches maybe 1% of ASEAN food economy (at most
10% direct involvement in the 10% which is rice).

11. …. The private sector is the other 99%: these are
the business investors in ALL the segments of
the supply chain. This includes farmers!
… A key role of government: create enabling
conditions to promote investment by the 99%
Reduce risk in investment (including policy
uncertainty)
Increase soft and hard infrastructure

12. b) Trade is important at the MARGIN –
… but is only about 5% of the food economy of
ASEAN
… trade is only 10-20% as important as the
modernizing food market inside ASEAN urban
areas
... I focus next on rapid modernization of the
ASEAN food economy

13. 5) The ASEAN food economy has
changed ENORMOUSLY in the 40 year
period Timmer discussed – from the
1973 food crisis to now:
with big implications for food security
investment strategies

14. a) Extremely rapid urbanization
… 50% in urban areas by 2010, rising fast
Example: South Korea did in 2 decades (1970-
1990) what US did in 9 decades
… 75% of the ASEAN food economy in urban
areas
… that market is growing 5-7 times faster than
OECD food markets
big opportunity for income growth for
farmers

15. b) Consumption and production have diversified
very fast (income growth + urbanization +
Bennett’s Law)
… as noted, share and level of rice in
consumption dropped
… diversification into non-rice products rose
very fast
A huge opportunity to raise farm incomes as
produce products that pay 4 times what rice
pays to small farmers

16. c) The post-farmgate segments of the agrifood
supply chain have developed to become 50-
70% of the formation of the food price
… only 30-50% of the food price is formed at
the farm sector…
… yet the debate focuses mainly on farm
productivity productivity: this is necessary but
not sufficient
increases in efficiency of wholesale/logistics,
processing, and retail would have as much or
more impact on food security

17. d) Wholesale/logistics, processing and food
retail (inside ASEAN + China) have VERY
quickly transformed in the past 10-20 years –
the fastest in the world, in history
… based mainly on massive investments by
private sector (domestic and foreign)
… with impacts on the ASEAN food economy 6-
10 times more important than international
trade effects

18. … wholesale/logistics
… first stage was massive government
investment in wholesale markets (China,
11,000% increase in these markets in 1990s;
India, from 450 in 1950 to 5500 in 2008)
… second stage (1990s/2000s) HUGE private
sector investment in logistics firms, specialized
wholesalers
… third stage is “follow sourcing” (large
processors and retailers “bring along”
multinational logistics/traders

19. … food processing
… first stage was parastatal processing and small
informal processing
… second stage was HUGE investment (by
domestic and foreign, following FDI
liberalization) in 1990s/2000s
example: Thailand’s CP creates largest shrimp
farm/processing in world in Indonesia
… third stage is rapid concentration &
multinationalization of food processign
(integration of ASEAN food economy!)

20. … food retail modernization
… first stage was (limited) public sector “fair
price shops” and some cooperative chains
… second stage (1990s/2000s) “supermarket
revolution” in ASEAN & China, starting India
… growing THREE times faster than GDP
… example: just top 47 chains in China, 13
billion USD in 2001, 92 billion USD in 2009
… example: Philippines, leading chains, from 1
billion USD to 10 billion USD just over 2000s

21. … modern retail from tiny share early 1990s to
30-60% of food retail over the past 15-20
years
… third stage: concentration and
multinationalization of food retail in the
region

22. e) Food Trade has a small share of the ASEAN
food economy
… but the fastest growth (and the future) is
INTRA-ASIAN trade
… heavily encouraged by the food industry
transformation & their procurement system
changes
Big opportunity, but also competition
… 30% of vegetables and 70% of fruit in
Indonesian supermarkets from Thailand and
China

23. f) Consumers win from this transformation
… Supermarkets in Delhi charge 15-20% less for
staples (rice and wheat) and 10% less for basic
vegetables than traditional retailers
Modern food industry can increase efficiency
in the supply chain and reduce food prices
(this is international experience as well)

24. g) Farmers both win and lose …
… farmers selling to supermarkets tend to
increase incomes because of quality
differentiation and price premiums
… but tends to favor medium farmers and asset-
rich small farmers
… so issue over time of helping asset-poor small
farmers to upgrade

25. … opportunity for public-private partnerships to
help small farmers participate:
… Malaysian program helping small farmers
into supermarket supply chains
… “Diamond” arrangements with
supermarkets, modern wholesalers, input
supply companies, farmer associations, and
government (Indonesia)

26. … rural business hubs, integrated platforms,
and economic corridors (PPP programs with
private sector anchor firms and hub+spoke
approach to include small farmers in area)

27. 6. Harnessing the private sector’s
investment
a) Crucial role of private sector in transforming
the ASEAN food economy
b) This raises consumer and producer food
security
c) Policy could aim at reducing risk and
increasing incentive for this investment
d) Governments can enter PPP where there is
win-win for business, small farmers, and
consumers