Presented by Steven J. Staal as a keynote address at the 74th Annual Conference of the Indian Society of Agricultural Economics, Maharashtra, India, 18-20 December 2014
Advances in AI-driven Image Recognition for Early Detection of Cancer
Livestock Marketing and Supply Chain Management
1. Livestock Marketing and Supply Chain
Management of Livestock Products
Steven J. Staal
International Livestock Research Institute
74th Annual Conference of the Indian Society of Agricultural Economics
December 18 - 20, 2014 • Aurangabad, Maharashtra, India
2. Outline of the Presentation
• Global Trends in Livestock Markets and Demand
• Livestock Trends in India
• The Role of Smallholders
• Forces Driving Unorganized and Super Markets
• Linking Farmers to Markets
• Upgrading Unorganized Markets
• Key Lessons and Conclusions
3. Trends in Livestock Markets and Demand
• Some of the most dynamic
markets both globally and in
South Asia are for livestock and
livestock product.
• This Livestock Revolution is
being driven largely by local
demand due to growth in
purchasing power and
urbanization.
0
20
40
60
80
100
120
140
0 10000 20000 30000 40000 50000
Percapitameatconsumpion(kg/year)
Per capita GDP (US$ PPP)
Japan
China
India
Brazil
Growing Incomes = increased consumption of livestock products
4. Projected change in global and regional demand for
food to 2050: Livestock and other commodities
-50
0
50
100
150
200
250
300
350
developed developing SSA SA
%change2005/07to2050
cereals root/tuber meat dairy
Source: Modified from Alexandros and Bruinsma (2012)
• Developing country demand for meat and milk may grow
by 50% to 2050. South Asia, with currently low per capita
meat consumption, may grow the fastest, estimated at 4%
annually to 2050.
5. Where will the supply come from to meet this
growing demand?
• Livestock products are perishable and require drying, freezing,
canning to trade. Generally only 10% of global meat and milk is
traded.
• Large majority of supply to developing countries will thus be
produced in developing countries, which is already happening.
• Developing country milk production is expected to grow by 1.8%
annually to 2050 (2.0% in the case of South Asia), compared to
only 0.3 % for developed countries.
• For meat the expectation is over 3% annual growth for
developing countries, compared to 0.4% for developed countries
6. 0
500
1000
1500
2000
2500
Global 1987 Global 2012 Asia 1987 Asia 2012
In$2004/06billions
Crops Livestock
Net Value Of Global Agricultural Production
1987-2012
Source: Delgado (2014)
• The share of value of production in Asia has grown to nearly half of the
global total, and the share of livestock in value of agricultural production
had also increased significantly, both globally and in Asia.
7. Livestock trends in India
• Livestock value increasing in share, recently
estimated at some 27% of agricultural GDP,
steady at 5% of total GDP even while
agricultural GDP declines in share.
• India is the world largest milk producer, and
growing, although trade in dairy products
remains relatively small.
• India also the world’s largest bovine meat
exporter since 2012, mostly offtake from
dairy buffalo systems.
8. Trends in the quantity and value of production
of milk and meat in India since 1980
0
5
10
15
20
25
30
35
40
45
50
0
40
80
120
160
1980 1985 1990 1995 2000 2005 2010
NetProductionValue
($1000Int.inMillions)
Production
(Tonnes,inMillions)
India Milk Production
Production: Whole fresh, cattle & buffalo
Net Value: Whole fresh, cattle & buffalo
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1980 1985 1990 1995 2000 2005 2010
NetProductionValue
($1000Int,inMillions)
Production
(Tonnes,inMillions)
India Meat Production
Production: Cattle & buffalo Production: Goat & sheep
Production: Chicken Production: Pig
Net Value: Cattle & buffalo Net Value: Goat & sheep
Net Value: Chicken Net Value: Pig
Source: FAOStats
The quantity and value of milk increasing
steadily at an annual rate of some 4%
since 1995
The case of meat, the feature that stands out
clearly is the strong growth in poultry
production.
9. Annual value of dairy, meat and live animal
products imported and exported since 1995
0
20
40
60
80
100
120
140
160
180
1995 2000 2005 2010
Thousands(1000$US)
India Meat & Live Animal Trade Value
Import, Cattle & Buffalo Import, Goat & sheep
Import, Pig Import, Chicken
Export, Cattle & Buffalo Export, Goat & sheep
Export, Pig Export, Chicken
0
20
40
60
80
100
120
140
1995 2000 2005 2010
Thousands(1000$US)
India Milk & Milk Products Trade Value
Import, Whole Milk Import, Butter & Buttermilk
Import, Skimmed Milk Import, Cheese
Export, Whole Milk Export, Butter & Buttermilk
Export, Skimmed Milk Export, Cheese
Source: FAOStats
• Strong demand and increases in the quota for duty-free
milk powder imports, has produced higher powder
imports.
Sheep and goat exports growing
10. Livestock price trends in India
• The price/value trend seems to be towards
ruminant products.
• Monogastric production (poultry, pig) has
been demonstrated to be generally more
efficient at scale, using concentrate feeds.
Relative price of poultry has been in decline
for some time, as production has been
commercializing
• Ratio of mutton to poultry unit prices tripled
to 2.9 from 0.7 since 1963.
• Same trend in other developing countries, also
related to the fact that mutton is often
regarded as superior product in many
countries.
11. Role of smallholders in production
• Smallholders continue to dominate livestock production in many
developing countries, including India, and particularly in the case
of ruminants.
• Smallholder farmers are estimated to produce the large majority
of the small ruminants and 70% of the milk in India.
• In contrast the Indian poultry sector has been rapidly
commercializing and broiler production is estimated to be 70% in
the organized sector
• “two worlds” of livestock in India, competing sets of producers ,
differentiated mostly by state or region.
“leading” zones = production is increasingly commercialized and
market-driven (Haryana and Gujarat)
“lagging” = subsistence and livelihood oriented (Odisha)
12. Smallholders competitiveness
• The large scale “enterprise model” of production (1 objective and
benefit=profit) Capital intensive , mechanization and economies of scale
advantages only work when labor costs are high, dependent on market-priced
inputs and labor
• Competitiveness of smallholder livestock producers is closely
linked to their “household model” of production (multiple
objectives, multiple benefits). Multiple benefits, maximum use of low
cost resources and farm synergies, interactions, not completely dependent on
profits, up to 40% non-market “return”
• Smallholders are competitive. Multiple studies across
continents, including some studies from India, demonstrate
reasons for underlying competitiveness
• Limited economies of scale in production in ruminants
• Often comparable unit costs of production, small vs large
• Fresh/Traditional product markets also buffer import competition
13. Unorganized or informal markets
• Driven by a significant gap between buyer demand for
characteristics of market products, and the standards in the
formal market for those characteristics.
• The level of formally processed livestock products in India is low.
Only 6% of meat (including beef and pork) is formally processed.
• Organized market share in dairy is estimated to have grown to
only 25%, in spite of efforts in cooperative development efforts.
• Similar in other developing countries e.g. pork in Vietnam
• Informal markets generally generate more employment. Milk
markets in Africa and South Asia were found to employ between
1 and 5 full time people per 100 liters of milk handled daily, at
above the minimum wage
14. Consumption drivers shaping markets
Conceptual relationship between level of safety or
standards and consumer purchasing power
15. The “Supermarketization” Phenomenon
• “Supermarketization” is the increasing market share of large food
retailers. Convenience of being able to buy a wide range of products in a
single location, sometimes at lower prices, and to perceptions of higher
product quality.
• On-going “quiet revolution” in Indian food supply chains, with
modern retail sales growing at 49% annually, driven by the private
sector.
• Supermarketization’ threatens smallholder market participation,
although smaller impact on fresh foods.
- Driving higher standards for quality and food safety.
- Changing market structure towards vertical integration, larger
scale of production.
17. • In spite of Operation Flood and the Anand model, cooperatives
have had a mixed record in livestock supply chains, and have been
most prominent in dairy, where is continued growth.
Producer company: A hybrid between a private limited company and
a cooperative
• It aims towards greater levels of efficiency and developing opportunities
to move further along the value chain
• Some for handling a range of commodities with market niches, and some
are large, with thousands of members
• Although cooperatives can opt for conversion under the law, there is little
evidence of that occurring on a significant scale, and state support varies.
Collectives and producer companies
18. Contract farming
• Means to link smallholder producers to modern supply chains
to reduce risks and uncertainty among both producers and
buyers, manage quality and timing of supply
• However, may be large barriers to entry, e.g pig production
in Vietnam, and non-compliance is routine
• Most success examples are in poultry (broilers)
• Experience in dairy contract farming in India, “leakage” limits
application to dairy
• Key feature for success: Batch production and critical timing
• Emerging lessons: No clear livestock examples suitable for
smallholders, except poultry
19. Hubs and clusters
• Combine public and private sector actors; exploit the presence of a
number of actors in a dynamic process that can evolve over time to
change with needs of producers and the market; build on the
geographical proximity of multiple producers
21. Innovation platforms
• ‘Innovation platforms’ as a means to
create new linkages between a wider
range of market actors & BDS
• IPs are simply arrangement which
allow individuals and organizations
to come together regularly to
address issues of mutual concern
and interest.
• Emphasis on ‘innovation capacity’ –
and fostering local ownership of the
process to enhance sustainability
• Typically not intended to be self-
sustaining organizations, but rather
to operate for a time to catalyze
23. Organisational issues in extensive and
dispersed livestock systems
Some livestock products markets are particularly resistant to forms
of collective action, often because of the structure of production.
• Small ruminants - may be raised as complementary outputs in mixed crop-
livestock systems or extensive systems
• The generally atomized , irregular and infrequent offtake of production, in
addition to distances, imposes market and organizational constraints.
• Low density of economic livestock activity in small ruminant production
systems, compounded by remoteness, poor infrastructure, and long-standing
traditional relationships between buyers and brokers
• Result is limited producer bargaining power, high TCs, asymmetrical
information, limited transparency in transactions
24. Food safety in livestock product markets
• India has been identified as a hot spot for threats from zoonotic
diseases for people.
• India emerged as the country at greatest risk globally (based on
analysis conducted of the interface of the three key factors of (a) poverty, (b) rapidly
changing livestock systems and (c) the prevalence of zoonotic disease)
• Disease transmission through livestock products – salmonella in meat,
brucellosis in milk, pathogens causing diarrhea in children
• In India, e-coli and campylobacter contamination in some meat
products at up to 50% among other pathogens. (It is difficult to obtain
systematic data on livestock product related threats to food safety in India)
• Aflatoxins may occur in milk from
animals fed contaminated feed (potentially
poisonous and carcinogenic effects in people )
25. Engaging with
unorganized markets for safety and quality
• (In East Africa and Assam) Through working directly
with informal market actors to increase both their
capacity for improved hygiene and food safety, as
well as their incentives for doing so.
• Informal market actors regarded as exploitative
middle men providing no real service and creating
threats to health
• Typically ignored by market development projects,
which prefer to work with groups of producers,
collectives and with modern private sector market
players
• Regulators and policy makers either ignore informal
market actors, or actively block their activities
• As a result, have no training and limited capacity
26. Training and certification with BDS
(In both East Africa and Assam)
Use a BDS approach to develop their capacity to upgrade value chains,
provide better services to clients, higher quality/safer products to
consumers
• Market actor training and
certification’ strategy has 3
components: (1) accreditation of trainers
generally in a local NGO or business development
services (BDS) provider, (2) training of market
actors by the BDS provider in handling, hygiene,
processing and business skills and (3) involvement
of he local regulatory agency to provide some sort
of certification or recognition of the trained market
actors
27. “Bridging the gap”
• ‘Bridging the gap’ strategy
• The gap between the inadequate traditional
standards on one hand, and the sometimes costly
standards of the modern market
• Address the reality that small scale or traditional
agents often occupy by far the largest market
share in developing countries
• An evolutionary process that recognizes that
• until consumer demand and willingness to
pay for higher food safety and quality
standards rises,
• informal markets will supply lower cost
products with lower standards, regardless of
policing or enforcement
28. Not discussed in this paper
• The potential for new ICT tools for better market information
• Policies and incentives to facilitate public-private-partnerships
and investment
• Livestock auctions, which have a mixed history in developing
countries
• Potential for valuable niche markets, branding and certification
for indigenous breeds of livestock e.g. indigenous chickens
29. Key lessons and conclusions
• Smallholders will likely continue to supply the bulk of ruminant
livestock products for the foreseeable future.
• In spite of supermarketization, unorganized or traditional markets
are likely to continue to be important.
• Continued innovation is needed for better linking smallholders to
markets.
• Extensive production systems may need specific development
models to address unique characteristics
• More use of BDS will reduce reliance on public services
• An evolutionary approach is needed to ‘bridge the gap’ between
unorganized and organized supply chains, for improving standards
over time.
• Research on these issues should continue.
31. The presentation has a Creative Commons licence. You are free to re-use or distribute this work, provided credit is given to ILRI.
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Managing these changes requires balancing regulatory interventions with economic forces in ways that are effective both for increased supply of quality products, as well as providing livelihoods and rural development opportunities through these growing markets.
Consumer demand is increasingly driving a move towards higher standards
I do attempt nevertheless to raise some of the key issues that emerge from these trends, point to the challenges and opportunities they raise, and suggest possible strategies for addressing them.
Livestock products are intrinsically difficult to trade because they are perishable, so require freezing, canning, drying, or processing of some sort to allow adequate shelf life to send to distant markets.
Feed grains, on the other hand, are much simpler to trade. The result is that livestock production occurs largely close to where demand is located and feed is often imported where needed
In India between 1963 and 2009 for example, the ratio of mutton to poultry prices has more than tripled from 0.7 to 2.9, and the same trend can be seen in other developing counties, including in Africa. Agricultural Prices in India published by Ministry of Agriculture, Government of India.
This reflects the fact that mutton production generally cannot meet demand. (Kumar et al., 2010), and has implication for market organization and performance as will be discussed.
Although this paper is focused on market issues, the livestock production context is clearly an important determinant of options for improving market performance and organization.
“two worlds” of livestock in India, differentiated mostly by state or region.
Other features of the “ two worlds” that these competing sets of producers live in are that while smallholder producers typically face greater market constraints, are often unsubsidized and sometimes more highly taxed, exhibit nutrient deficits among families, land and animals, and typically have little voice in policy and investment debates, in contrast the large commercial producers may capture market volume premiums , targeted subsidies or tax advantages, exhibit nutrient overloads, and generally have a loud voice in policy debates compared to their market share
traditional products that poor consumers often demand also provide a buffer to competition from imports, because they cannot easily by substituted by imported products,
Although this paper is focused on market issues, the livestock production context is clearly an important determinant of options for improving market performance and organization.
“two worlds” of livestock in India, differentiated mostly by state or region.
Other features of the “ two worlds” that these competing sets of producers live in are that while smallholder producers typically face greater market constraints, are often unsubsidized and sometimes more highly taxed, exhibit nutrient deficits among families, land and animals, and typically have little voice in policy and investment debates, in contrast the large commercial producers may capture market volume premiums , targeted subsidies or tax advantages, exhibit nutrient overloads, and generally have a loud voice in policy debates compared to their market share
traditional products that poor consumers often demand also provide a buffer to competition from imports, because they cannot easily by substituted by imported products,
parts of the livestock sub-sector, market structures and mechanisms must be suited to facilitating their role in supplying the increasing demand.
When demand for safety is above that line, as towards the right side of the graph, then informal markets largely disappear. When demand is below that line, as towards the left side, then the market will generally not enforce the standards and instead may supply largely informally.
actors, but experience has shown that those efforts are generally ineffective and market forces will determine the characteristics of products supplied.
As the middle class grows as a share of the population, purchases from modern retail markets will increase (Tschirley et al., 2014). The key issue for smallholders is the rate at which modern retail outlets will grow, and the extent to which smallholder farmers may be excluded from these firms’ “preferred supplier networks” by an inability to comply with quality or volume standards
As the middle class grows as a share of the population, purchases from modern retail markets will increase (Tschirley et al., 2014). The key issue for smallholders is the rate at which modern retail outlets will grow, and the extent to which smallholder farmers may be excluded from these firms’ “preferred supplier networks” by an inability to comply with quality or volume standards
Given dynamics of the continued evolution of market channels driven by consumer preferences and purchasing power, the structure and functions within the markets need to be able to meet the challenges imposed by change in order to meet the multiple objectives of supplying urban consumers and fostering rural development.
Operation Flood and the Anand model, cooperatives have had a mixed record in livestock supply chains, and have been most prominent in dairy.
Operation Flood, dairy cooperatives in India have grown in importance. In India the formal share of the domestic dairy market is some 25%, about half of which is handled by dairy cooperatives, and is significantly up from the 5-7% share of some years ago, the other half by the private sector
Interestingly, the average size and number of members of village-level dairy cooperative societies has changed very little over time
Dairy producers find alternatives for some portion of their daily milk output, and so informal markets offering higher prices can absorb a significant share of output, with only the remainder being supplied to the formal contract buyer.
Unreliability of supply deters contractual buyers.
Egg production is less commonly under contract, may only remain an important mechanism in livestock supply chains in broiler production for the foreseeable future.
Aim: to reduce risks and uncertainty among both producers and buyers.
Producer risk reduced by potential access to a reliable market outlet, as well as access to inputs and services.
The experience of contract farming in the livestock industry is mixed, and depends significantly on the animal species and products.
Different models – poultry broiler supply chain; pig production; dairy
Evidence across a number of countries and commodities of high levels of non-compliance with contracts, by producer or buyer
‘Dairy farmer’s business organization’ (DFBO)
Avoids reliance on either one large formal buyer or on public extension services
Similar approach promoted by UNIDO, which also focuses on the geographical clustering of enterprises
The overall geographical cluster may include producers, processors, suppliers of equipment or technical service and buyers along the value chain
‘Dairy farmer’s business organization’ (DFBO)
Avoids reliance on either one large formal buyer or on public extension services
Similar approach promoted by UNIDO, which also focuses on the geographical clustering of enterprises
The overall geographical cluster may include producers, processors, suppliers of equipment or technical service and buyers along the value chain
Increased attention has been given to strengthening local actor capacity.
Emphasis on ‘innovation capacity’ - need to foster local ownership of the process to enhance sustainability
‘Innovation platforms’ as a means to create new linkages between a wider range of market actors
Typically not intended to be self-sustaining organizations, but rather to operate for a time