"Partnering for Impact: IFPRI-European Research Collaboration for Improved Food and Nutrition Security" presentation by Maximo Torero, IFPRI, 25 November 2013 in Brussels, Belgium.

1. Value Chains for Nutrition and
Smallholder Income
Maximo Torero
m.torero@cigar.org
Christoph Sänger
SaengerC@ebrd.com

2. Market failure focus
Goal: making commodities markets function
for the poor at local, regional, and
international markets by:
•
•
Releasing constraints to participation
Enhancing benefits from participation (better income
and nutrition)
Major Market Failures:
•
•
•
•
•
•
Externalities (+/-)
Merit and demerit goods
Public goods
Information asymmetry
Monopoly (monopsony) power
Government failure
inefficiency
and high
transaction
costs

3. But
• The Challenge: Income growth and market
development are not sufficient to improve
nutrition and food safety.
• The Opportunity: Can value chain research
improve market performance but also for
nutrition and food safety?

4. Income Growth Can Reduce
Child Stunting, But Other Actions Needed
A 10% increase
in GDP/PC
leads to a 6%
reduction in
stunting
Source: M.T. Ruel and H. Alderman (2013) Nutrition-sensitive interventions and programmes: how can they help to accelerate
progress in improving maternal and child nutrition? The Lancet 6736(13): 1-16 (DOI: 10.1016/S0140-6736(13)60843-0).

5. Income Growth Can Increase Risks of Overweight and
Obesity
A 10%
increase in
GDP/PC
leads to a 7%
increase in
overweight
and obesity in
women
Source: M.T. Ruel and H. Alderman (2013) Nutrition-sensitive interventions and programmes: how can they help to accelerate
5
progress in improving maternal and child nutrition? The Lancet 6736(13): 1-16 (DOI: 10.1016/S0140-6736(13)60843-0).

6. Income Doesn’t Lead Diets
Towards Ideal Nutrition
(shares of daily calorie consumption by food groups)
Ideal
US
China
Bangladesh
Starchy
Staples
48
31
49
80
Legumes &
Nuts
22
5
3
4
Animal &
Fish
Products
10
14
20
4
9
7
9
2
11
43
19
10
Too many Too many
Too few
Fruits &
Vegetables
Fats &
Sugars
Total
Calories
2200
Source for “Ideal” shares: Thompson and Meerman, FAO, 2013

7. Value Chain Approach
Producer
Supply side
Inputs into production
Food production
Identify production and
market constraints to
improved nutrition and
safety
Food storage and processing
Food distribution and transport
Food retail and labeling
Develop and test
solutions
Example: Increased
seasonal availability of
fruit
Example: Nutrition
education delivered
by vegetable seed
supplier
Consumer
Test solutions to improve
demand for nutrition and
safety along the value
chain
Characterize diets, market
access and constraints to
consumption of
nutritious, safe foods
Demand side

8. Key topics we are focusing
• Nutrition and food safety
• Contract farming
• Farmer groups
• Access to finance
• Access to micro-insurance
8

9. Key topics we are focusing
• Nutrition and food safety
• Contract farming
• Farmer groups
• Access to finance
• Access to micro-insurance
9

10. Value chain example: the Vietnamese
dairy sector
• Archetypal for high-value agricultural markets
in DCs
• Domestic demand for dairy products grows
quickly
• Atomistic supplier structure
• Buyer holds natural monopsony
• Sector is dominated by formerly state-owned
Vinamilk

11. Existing contractual arrangement
i
x 52
x 365
Factors constraining farm productivity:

“Usual suspects”: infrastructure, access to
inputs/credit, skills

But also contractual design and institutions?
— Lack of transparency: quality is assessed by the company

12. Research project and research questions
Research questions:
Does provision of 3rd-party quality assessment…
…make farmers produce more and higher quality milk?
…increase welfare levels of farming households and of the
dairy processor?
Field experiment:
• Through collaboration with Vinamilk we could work with
400 contracted dairy farmers in “natural” setting

13. Experimental Design
!
?
i
 Treatment farmers (n=100) receive vouchers for
zero-cost milk testing in independent lab
 B-samples taken & transported to independent
laboratory
 Vouchers executed whenever farmers challenge
the company’s testing results
 Company does not know when vouchers are
executed  Eliminates opportunistic behavior

14. Main results
• Independent quality verification leads to higher input
use, more output, slightly higher household welfare
in treatment group compared to control group
• Independent quality verification enables the
processor to signal its type “fair”
• More transparency in the dairy supply chain
– Small-scale dairy farmers gain
– Processor gains from lower per-unit transaction
costs when procuring raw material

15. Policy implications
• Role for the state in establishing infrastructure for
third-party quality verification?
• More competition among buyers of milk would help
– Improve contract terms for small-scale farmers
– Race to the top with respect to transparency
15

16. Health benefits and Agricultural contracts
Experimental evidence from Northern Senegal
• Can health-related incentives be used to
overcome contract enforcement issues with
small-scale agriculture suppliers?
• Can existing value chain logistics be leveraged
to increase health conditions in remote
locations?

17. Health benefits and Agricultural contracts
Experimental evidence from Northern Senegal
• Semi-nomadic milk producers, very remote
location
• Milking efforts by women, cash collected by
men
• Highly unreliable milk supply, particularly in
dry season
• Extreme level of anemia prevalence for
children in the area (82% anemic, 15% severe
anemic).

18. Clear and significant effect on
milk delivery during dry season
Order of magnitude: 10
percentage point (=30%) higher
contract fulfillment in treatment
group in early June.
-.1
0
.1
.2
Preliminary results
Note: Impact parameter estimate for separate impact
estimates ran each week. Lowess smoothing function
used across estimates. Dahes lines are 95% confidence
interval
Positive dose-response effect on
children’s health (Hemoglobin
level)
Order of magnitude: 1.25 g/dl Hemoglobin
increase for 16 weeks of continuous
fortified porridge intake.
Note: Generalized propensity score estimate used
to deal with endogeneity of treatment intensity.
Green and red lines are 95% confidence interval

19. Summary
• Addresses market failures to release constraints
faced by smallholders but to enhance benefits
• Although Increased calorie production and
incomes is not sufficient and no longer seen as
ag’s only role
• We also need to increase diet diversity and
consumption of nutrient rich foods
• Is central to identify barriers to greater
consumption of nutritious foods
• Tests market solutions to provide better nutrition
and food safety