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The Enabling Environment for Inclusive in Southeast Asia Paul S. Teng National Institute of Nanyang Technological University Singapore Email: [email protected]

Jurise A.P. Oliveros National Institute of Education Nanyang Technological University Singapore Email: [email protected]

ABSTRACT

Smallholder constitute a sizable subset of the population in the ASEAN region and therefore are important stakeholders to consider in realizing the broader goals of inclusive development and poverty reduction. Linking them to various -related activities across the paves the pathway of opportunities to expand their access to markets and build capacities. As such, determining policy and institutional conditions that enable inclusive agribusiness development as well as key barriers to their engagement would provide greater leverage for smaller agribusiness players to move up the value chain. By reviewing the extant literature on agribusiness models, we provided a survey of the inclusive agribusiness structure most prevalent in the ASEAN region. The study draws from the “Hierarchy of Enabling Needs” model and socio-organizational structure model to offer an integrated conceptual framework that maps out the environment that facilitates stronger linkages and deeper inclusion of small-scale players in the agribusiness structure. To better situate the conditions of inclusive agribusiness, the sets of enablers are further assessed across varying country contexts. The paper suggests that there is no single model that could encapsulate deeper linkages in the sector. Notwithstanding ASEAN’s fundamental diversity, the region is bound by its outward looking and market-oriented policy frameworks that serve to enable pathways and corridors toward greater inclusiveness in the agribusiness sector.

Keywords: inclusive development, agribusiness linkages, inclusive agribusiness, agribusiness models, agri- sector policies JEL Classification: O13, O43, Q13, Q15 2 Paul S. Teng and Jurise A.P. Oliveros

INTRODUCTION empirical inquiry in a relatively nascent but rich research ground of inclusive agribusiness. Agriculture occupies a special role in the socio- of ASEAN CONTINUING IMPORTANCE OF countries as most of them have their roots in AGRICULTURE IN ASEAN agrarian societies. Historically, agriculture’s role in ASEAN has been anchored by The ASEAN region is endowed with governments working with the millions of abundant resources including land, water, and smallholder farmers, but post the “Green people, and ASEAN’s agriculture sector has Revolution” era, when modern technologies the potential to have even more positive impact became evident in fueling both production on the region’s and economic and , the private sector emerged progress (Teng and Escaler 2016). However, as an important catalyst for change and the challenges exist which in the mid- to long- agribusiness sector in ASEAN evolved into term have potential to become real bottlenecks a significant contributor to economic growth to progress. Several of these are highlighted in many countries (Clarete 2004). Taking into in this paper, particularly trends that influence account their size, financial capacity, global inclusiveness of smallholder farmers in the operation, and engagement in international trade food . and investment, the role of the private sector is deemed highly critical in realizing inclusive The Changing Operational Environment development in the agriculture sector (OECD of Agriculture and 2015). Since the concept of inclusive development advances the key tenet Southeast Asia’s population is expected of equitable opportunities across all segments of to increase by almost 100 million by 2030 to the population, sustained and equitable growth, exceed 700 million (ADB 2014a). A direct therefore, is crucial for marginalized sectors to result will be an increase in food demand realize long-term development gains. and diet diversification, owing to larger Major constraints, however, point to the lack proportion of urban population and a growing of a conducive environment that incentivizes middle-class. By 2030, over half of ASEAN’s and inadequacy of productive and population will live in urban areas. With rural sustainable linkages among agribusiness players to urban migrations, the agricultural sector (Gradl et al. 2012). As an upshot, marginalized is already facing new challenges associated sectors and smaller agribusiness players have in with farmers growing older and not enough many countries been less able to integrate across new entrants to . According to the Asian agribusiness value chains, which characterize Development Bank (ADB), all of the ASEAN modern agri-food systems. In this paper, the countries at least doubled their gross domestic environment that smallholder farmers operate products (GDP) during the 2000–2015 period were reviewed. The types of agribusiness (ADB 2014b). As incomes rise, there will be models prevailing in Southeast Asia as a basis a move away from a mainly cereal diet to one to assess inclusiveness of smallholder farmers that includes more resource-intensive food were discussed. Lastly, a model that describes products, such as meat, dairy, eggs, , and the enablers for inclusiveness of smallholders , thus, unleashing a rapid increase in in the value chain was conceptualized. This demand for raw agricultural . Food model provides a useful framework for further preferences have also undergone a shift towards Asian Journal of Agriculture and Development, Vol. 13 No. 2 3 easy-to-prepare or “convenience ” as in 2050 than in 2000 due to female entrants in the workforce increase, and (Nelson et al. 2009). Critical Southeast Asian towards more international tastes, as preferences rice production in low-lying coastal and deltaic become increasingly globalized. These areas is projected to be at increasing with significant trends are breaking grounds for new the effects of climate change. Along with the markets for a broader range of higher-valued changes in external environment are significant food products and processed foods. Aside from implications that factor in the growth and food products, such trends are also propelling development of the sector. Unless growth the evolution of innovative systems is sustained and equitable, the marginalized and food service industries across developing groups in the agri-food sector are less able economies. The opening of new markets and to realize the ripple benefits in the long term in service systems creates potential (UNDP 2011). opportunities for more inclusive engagement particularly among specialized local producers. The Multiple Roles of Agriculture Changes in dietary preferences and and Agribusiness increases in food prices are among the factors Agriculture has played and continues to that led to the expansion of land used for play essential and multi-faceted roles in the as a percentage of total land area in most of ASEAN region—as an important driver for ASEAN in the last few decades. Between social, inclusive growth; as an important source 1970 and 2011, the Food and Agriculture of export earnings in support of economic Organization (FAO)’s database, FAOSTAT, development; as a guarantor of food availability showed that the percentage of agricultural land to its citizens for staple and non-staple food area in ASEAN increased substantially from items; and as a source of directly 20.2 percent to 29.4 percent (Teng and Escaler and through agriculture-related, value-adding 2016). Land degradation and soil , activities (Teng and Oliveros 2015). Historically, however, are rapidly taking place in the region the agriculture sector in the majority of member while arable lands are being converted to other states has contributed significantly to GDP. non-food uses that provide higher economic However, as the regional economy boomed returns versus food production. The average per and countries opened up and embraced market- capita area in ASEAN meanwhile is oriented economics, agriculture’s share of GDP only 0.12 hectare (ha) (FAO 2011). declined over the years. In 2013, agriculture’s Environmental factors likewise put contribution as a percentage of national GDP additional pressure on natural resources and were significantly lower in Cambodia (33.8%), food security, such as higher and more variable Myanmar (36.9%), Lao PDR (30.8%), Vietnam temperatures, changes in precipitation patterns, (18.4%), Indonesia (14.4%), and the Philippines and increased occurrences of extreme weather (11.2%). Agriculture still remains an area of events (Teng et al. 2015). Climate change is high-priority for ASEAN despite its declining also responsible for rising sea levels leading to contribution to the region’s GDP during the increased salinization in river deltas and lakes, last two decades (FAO 2014). Across Southeast thus further reducing freshwater availability. Asian economies, agriculture’s share of GDP According to projections by the International showed observable disparities and relative Food and Policy Research Institute (IFPRI), decline owing to corresponding growth in the Asia’s production of irrigated and rice and services sectors. This, however, will be 14 and 11 percent lower, respectively, 4 Paul S. Teng and Jurise A.P. Oliveros

does not imply the declining importance of scale plantations, notably in the permanent agriculture in ASEAN, as it still employs a agriculture land producing palm oil and rubber. significant proportion of the workforce in every The robust trade in the region was achieved country in the region, with the exceptions of through a mix of public and private sector Singapore and Brunei Darussalam, which are investments sourced intra- and extra-regionally. primarily urban city centers, and to a lesser Following the phased roll-out of the ASEAN extent, Malaysia (Table 1). More than 60 Economic Community (AEC) in 2015, there percent of the workforce in Cambodia and Lao will likely be increased opportunities to tap PDR are employed in agriculture. synergies brought on by the opening and ASEAN agriculture also remains a liberalization of markets, which are central to powerhouse in the production and supply of the goals of the AEC. important food items. From its arable land area Increasing trade within the region and of approximately 70 million ha, ASEAN has across the globe has significant implications the world’s two top consistent rice exporters with regard to the rapid evolution of the ( and Vietnam) responsible for over 70 agri-food and transformation of percent of the world’s exported rice. ASEAN agribusiness-related activities. As an upshot of countries remain among the top three exporting deeper regional integration and liberalization countries of pineapple, , mango, sugar of trade and investment, the production system crops, coffee, cashew nuts, and cassava. has increasingly grown complex; compounded The region’s semi-permanent to permanent by multi-layered linkages and boosted cross- agricultural has made it the world’s border business activities (OECD and World top producer and exporter of palm oil, coconut, Bank 2015). The unprecedented increase in and rubber. ASEAN is also a major producer the flow of foreign direct investment (FDI) and exporter of seafood, and has been the induced by multinational companies also world’s largest exporter of crustaceans. While enabled fragmentation of production processes most of the region’s farmers and producers are and activities into geographically dispersed smallholders, there are also significant large- but intricately connected value chains (i.e.,

Table 1. Employment in agriculture (% of total employment)

1990 2000 2010 2013 Brunei Darussalam ...... Cambodia ... 73.7 72.3 64.3 Indonesia 55.9 45.3 38.3 35.0 Lao PDR ...... 72.2 ... Malaysia 26.0 16.7 13.6 13.6 Myanmar 65.6 ...... Philippines 44.9 37.1 33.2 31.0 Singapore 0.3 0.1 0.1 0.1 Thailand 63.6 44.2 38.2 41.7 Vietnam 72.1 64.4 49.5 46.8 Source: ADB 2014b Note: ... means data not available Asian Journal of Agriculture and Development, Vol. 13 No. 2 5 research and development, production, inclusive development, this study stresses a processing, procurement, distribution) (OECD greater need for more in-depth analysis of the 2012; Thun 2012). These global value chains participation barriers as well as underlying (GVCs) consist of links between production, conditions and policy actions that facilitate processing, and distribution centers, often greater engagement and deeper inclusion of driven by FDI in the food and retail sectors of smaller players in the agribusiness landscape. developing countries. GVCs favor production and distribution systems that meet volume Smallholder Farmers in ASEAN requirements and address quality and safety standards. Hence, organized supply chains There are an estimated 100 million are displacing traditional arrangements such smallholder farmers in the ASEAN region as spot markets and integrated plantations. (Eskesen 2016), each farm less than 2 ha. Farm Many multinational companies are involved sizes have important implications for food in the different parts of GVCs in ASEAN, as production because relatively large consolidated providers of farm inputs (, ), have the capacity to be more efficient and traders, processors, and retailers. In ASEAN, productive by optimizing and there is also an emerging significant number using modern technologies. These trends and of agri-food industry entities, which have in patterns point to the unequivocal importance their portfolios, activities spanning more than of smallholders in the ASEAN agri-food one part of the supply or value chain, and sector. Furthermore, smallholders face many with revenues exceeding USD 1 billion, as challenges in attempting to relate to modern exemplified by Wilmar (Singapore), CP Group agri-food supply chains (IFC 2013). Among the (Thailand), and Sime Darby (Malaysia) (Dy major challenges are access to market, lack of 2009). organization, informal landholding, and poor Through these interconnected chains access to credit. of business activities from farm to fork, the The ASEAN region has also evidenced agribusiness sector has become an integral increased global and regional trade, which vehicle for employment and income generation has been a key driver of the modernization of (Konig, da Silva, and Mhlanga 2013). The ADB the agricultural sector in the region (Clarete has noted that small farmers in developing Asia 2004). It has spurred technological changes of could realize dramatic income increases by production practices, shifted production from joining these supply chains, especially if they traditional to high value products, expanded can upgrade their farming and postharvest industries, boosted other value- practices. Of the various world regions, Asia added industries along the supply chain, and has the smallest sized farms and the largest improved quality and safety standards. This number of smallholder farmers. In the ASEAN has been particularly pronounced in plantation region, available statistics show approximately crops such as palm oil and cacao. While the 100 million smallholder farmers (Eskesen increase in trade has provided consumers with 2016). The various upstream and downstream a greater variety of products at lower prices, agribusiness links also created equitable and the distribution of benefits along the supply viable opportunities for smaller agribusiness chains has been uneven (FAO 2014). The rapid players to be incorporated deeper in the value transformation of supply chains has obvious chains, making the agribusiness approach implications on food security, particularly inclusive. As a key locomotive for attaining for the millions of smallholders in the region 6 Paul S. Teng and Jurise A.P. Oliveros

who are themselves food insecure. While this agri-food spectrum. The opportunity lies on transformation has led to higher quality, safer, “tapping the assets of agribusiness in terms and cheaper produce for urban consumers, of access to technology, capital, and markets market participation by smallholders is lower to complement the assets of smallholders in (Minten and Reardon 2008). Smallholders, terms of labor, land, , and local whether in the , or knowledge” (Byerlee et al. 2014). sectors, are unable to meet the quality, safety, The data on business models for uniformity and standards demanded at the agribusiness within the ASEAN region is higher end of the market. They do not have relatively scarce (Dy 2009). This lack of adequate access to technology, inputs, and comprehensive studies may be attributed to services required to produce high quality the difficulty of monitoring existing business products demanded by consumers and supplied models in the agriculture sector. There is no by new market outlets like supermarkets. Also definitive means to delineate these models into because of economies of scale in production neatly defined categories since some of these and processing, smallholders are unable to have overlapping functions across value chain compete with industrial production systems stages (i.e., -owned business models (Jabbar 2014). This provides a strong argument mainly use arrangements to for ASEAN to consider a stronger push towards engage smallholder farmers). However, in the “inclusive agribusiness” approaches to sustain interest of providing a clearer and more critical growth in the agriculture sector. analysis, this study devised an appraisal of the various agribusiness models across the varying stages of the value chain based on comparative INCLUSIVE AGRIBUSINESS MODELS prevalence/adoption of the model as well as IN SOUTHEAST ASIA relative benefits and for small farmers that are associated with the model (Table 2). Agricultural business models are basic Table 2 also gives an assessment of the relative structures or strategies that capture value along adoption of the different agribusiness models market network links of different business along the supply chain. stakeholders (i.e., producers, traders, and Agribusiness models inclusive of small buyers). Predicated on basic business principles, farmers in ASEAN include contract farming, it is vital that every component across the system contracts, land concessions, follows a coordinated and smooth-running farmer-owned , and upstream chain to increase value and gain competitive and downstream business links. Each will advantage in the business. As such, agribusiness be described in the sections that follow. models are highly susceptible to cost additions and business risk and it has been noted that dealing with fragmented small farmers Contract Farming reinforces the very definition of risk and cost This involves (including (Vorley, Lundy, and MacGregor 2009). This has processing and marketing firms) forming an substantial impact on the degree of discernment agreement with farmers for the production among smallholders in terms of market and supply of agricultural products (Eaton and inclusivity. The range of business activities Shepherd 2001). The arrangement involves through which smallholders could gain entry specification on volume and quantity of supply, to agribusiness arrangements varies across the purchase price, and agreed delivery date terms Asian Journal of Agriculture and Development, Vol. 13 No. 2 7

Table 2. Inclusive agribusiness models across different stages of the value chain

Distribution, Farming and Processing and Marketing and Supply Chain Wholesale, and Food Production Postharvest Sales Retail Contract farming Farmer-owned agreement business links with Contract farming between Upstream agribusinesses (e.g. nucleus estate processing and links between (e.g., marketing and multipartite manufacturing agribusinesses and and sales, logistics scheme) ++++ firms and smallholders ++++ and administrative smallholder “Inclusive” services) ++ arrangements farmers ++++ to include small- Farmer-owned Downstream scale owners business/ Agribusiness links Land concession links between and enterprises with smallholder arrangements +++ agribusinesses and farmer links with farmers ++++ smallholders ++ agribusiness firms

Management contracts (e.g., ) ++

Contract farming Large and land agribusinesses and Farmer-owned concessions processing firms business links with remain the most initiate linkages smallholder primarily Emerging economies popular and with smallholders through contract in Asia, particularly Extent and widely practiced through contract farming and joint China, Malaysia, and comparative agribusiness farming and joint ventures the Philippines are strength of models in ASEAN ventures becoming increasingly agribusiness Among Producer Although trends in specialized in models in management or farmer organization intermediate input ASEAN contract models, farmer-owned are expanding, production and sharecropping is businesses also business activities upstream business the most commonly carry post- on marketing and activities employed operations through sales among farmer- land tenancy contract farming organizations remain arrangement and joint ventures marginal ABC Heinz Sino-Thai company Plasma-Nucleus Normincorp supply chain with Choern Pakard Group Partnerships, Mindanao, growers, (CP Group) links with Indonesia Philippines Indonesia Myanmar farmers Plantation farm Major food As market facilitator Selected cases owners (nucleus processing for NorminVeggies of inclusive or “Inti”) allot land The agro-food companies like farmer organization, agribusiness in plots for palm corporation led maize ABC Heinz have their business Asia oil development contract farming formal supply activities include for farmers; the scheme with upland chains with local order taking, agroholders also smallholder in Shan vegetable growers outshipment logistics provide technical State, Myanmar while they provide as well as billing/ support and inputs production inputs charging for production

Note: ++++ High adoption; +++ Moderate adoption; ++ Low adoption; + Infrequent adoption 8 Paul S. Teng and Jurise A.P. Oliveros

(Vermeulen and Cotula 2010). Management Contracts Buyers are typically large agribusinesses Management contracts include a variety firms (processors and traders), which initiate of agreements in which farmers are contracted linkages with smallholder groups, stipulating to work on the agricultural land belonging to provision of production inputs, financing, and larger-scale agribusiness or agro-holdings; extension services in exchange for delivery the farmer is consigned as cultivator of the of commodities within quality, quantity, and land. The farmer will manage production and price specifications (Tuan 2012). In the initial harvest in the farmland in place of the owner stages of crop cultivation, contract farming is or the ‘agro-holder’ (Vermeulen and Cotula the most prevalent and highly adopted model 2010). The types of management contracts for agribusiness. There are different types of are differentiated in terms of the incentives contract farming models being practiced in the received, such as fixed cash, sharing, and ASEAN region, distinguishable by the intensity share cropping. of contractual arrangement, type of product, and Share cropping is a common type of land number of key actors involved. The Centralized rental widely practiced in Indonesia. The contract farming model refers to supply purchase arrangement allows for tenants to cultivate crops from large number of smallholder farmers on the land with each party acquiring shares of given stringent quality control requirements the production output. It is broadly criticized and pre-agreed quantity of products (Melese as a less efficient and more exploitative land 2011). One example of contract farming is rental system than fixed rentals. However, the nucleus estate model frequently adopted sharecropping is perceived to be more flexible in Indonesia, in which agribusiness possesses and less risky for both landowners and tenants farm plantations in proximity to independent and also more beneficial for some small-scale contracting farmers, e.g., the Plasma-Nucleus farmers who lack credit access and have limited Partnership or the Pola Inti Rakyat (PIR) in the capital (Quan 2006). In terms of the land tenancy palm oil industry (Tambunan 2014). There is trends in Asia, share cropping is the prevailing also a “Multipartite model,” which integrates approach in management contract models. various actors such as government, NGOs, and Management contract models in general are other business services. For example, cases in adopted less as compared with contract farming Vietnam involve agribusiness to provide inputs arrangements. for production while the public sector renders legal support and extension programs (Melese Land Concessions 2011). Since owner cultivation is the prevalent Aside from contract farming, land system within the ASEAN region, contract concessions are another frequently adopted farming in general remains the most popular business model in Southeast Asia. Through land and widely practiced agribusiness model for concessions, agribusiness investors are granted both domestic and foreign investment in the the land-use rights for a specified period region (Lastarria-Cornhiel, Melmed-Sanjak, (Campbell, Knowles, and Sayasenh 2012). and Philips 1999). Multinational firms such as Land concession arrangements are prevalent Nestle, Olam, Unilever, and Carrefour source among many ASEAN countries, particularly in their products through contract arrangements Indonesia, Lao PDR, Myanmar, and Cambodia, with smallholder farmers in Asia (Prowse where land is strictly regulated or fundamentally 2012). state-owned. In Indonesia, land ownership is Asian Journal of Agriculture and Development, Vol. 13 No. 2 9 regulated under the Basic Principles of Agrarian owned businesses, the distribution of benefits Law (UUPA–Undang–Undang Pokok Agraria). among heterogenous members of farmers is Under this , freehold access to land often a challenge, as the heterogeneity lends and cultivation rights are extended to Indonesian itself to group conflict (Wong 1979). Although citizens only. Private enterprises and large trends show expansion of farmer organizations, commercial agribusinesses are granted various their functions are largely confined within credit rights to exploit the land (such as the Industrial distribution, input provision, and farm product Forest Plantation [HPH–Hak Pengusahaan procurement. Other business activities across Hutan] and the Ecosystem Reforestation Rights the value chain such as marketing, processing, [Hak Reboisasi Ekosistem]) (Tambunan 2014). and post-harvest operation remain relatively Land concessions have been criticized for their weak (Prakash 2003). impact on domestic growth and development, One of the successful farmer-owned as well as effect on stability and land conflicts. businesses in terms of smallholder inclusiveness Myanmar and Cambodia also allocate land is the Northern Mindanao Vegetable Producers’ concessions to large-scale agribusinesses organization in the Philippines—the Normin (Byerlee et al. 2014). Veggies farmers’ organization (Vorley, Lundy, and MacGregor 2009). Farmer-owned Businesses Upstream and Downstream Business Links For agribusinesses, working with larger and organized groups of farmers is sometimes more Upstream and downstream links refer to efficient. Farmer-owned businesses are formally the array of business activities beyond or even organized cooperatives or legally incorporated supplemental to agricultural production that entities that are involved with particular types connect agribusinesses and smallholders or of activities such as processing and marketing small enterprises. In the upstream spectrum, (Vermeulen and Cotula 2010). With these, small producers are integrated via supply farmers have greater leverage in obtaining credit inputs of services to agribusinesses. Toward and investment opportunities. Farmer-owned the downstream end, business activities that businesses include those with economic and allow smallholder entry include processing, business focus as well as welfare organizations. storage, transport, and wholesale facilities The main criticism on farmer organizations is (Vermeulen and Cotula 2010; Vorley, Lundy, the undue emphasis on democratic governance and MacGregor 2009). The business operation that often leads to inefficiencies in decision- may be supplemental to production for the making (Vorley, Lundy, and MacGregor 2009). farmer or serve as backward linkage for large Farmer-owned businesses or cooperative agribusinesses along the latter part of the farming have enormous potential for deeper supply chain, such as in wholesale or retail. inclusion of smallholders in the supply chain. In the upstream end, farmers form backward However, while it has been recording notable links with agribusiness for input supply such as growth, the different forms of cooperative feeds, fertilizers, and chemicals. farming have had very limited success in More prominently in the ASEAN region, comparison with the independent or family there has been an observed trend of production farming agribusiness ventures within the fragmentation across the value chain. Firms Southeast Asian context. Even though the are able to fragment or break down production potential gains are augmented through farmer- activities and situate them in different locations, 10 Paul S. Teng and Jurise A.P. Oliveros

depending on a country’s comparative advantage potential to bridge the gap between the large such as low or wage cost population of smallholder farmers and the (Kimura and Ando 2005). Fragmentation along dynamic business structures across the entire the supply chain allows greater involvement agri- from different chain actors in accordance with their business specialization and comparative A Conceptual Framework to Characterize advantage, creating a large and interweaving the Enablers of Inclusive Agribusiness production network in the region. ASEAN possesses diverse socio-economic An enabling environment/condition for and political backgrounds, land tenure, cultural the business sector constitutes set of policies, traditions, demographic patterns, and agro- rules and , values, and institutions ecological conditions. These influence the that jointly enhances the system through which business decisions of agro-based firms and the business activities can develop. The concept consequent equity and inclusion of smallholder of “conducive enabling environment” is thus farmers. As such, there is no single business associated with interaction or nexus among model that could facilitate inclusion of all foreign firms and other business stakeholders as smallholder farmers. The efficient functioning influenced and shaped by the imposed policies of these inclusive agribusiness models rely on and working institutions (Konig et al. 2013). In good governance as well as effective public the agribusiness sector, these sets of enabling policy. Various policy measures, as well as legal policy measures and institutional framework and institutional framework function conjointly collectively facilitate stronger linkages and in setting the course toward a country’s long- deeper inclusion of small-scale players in the term goals on and inclusive agribusiness structure (Gradl et al. 2012). growth and development. National policies The range of farm-to-fork business activities steer the goals and action responses adopted by through which small players could gain entry to the government, while institutional environment agribusiness value chain varies across the agri- provide the resources and capacities to develop food spectrum covering farming, production, and implement the policy goals. Legislation processing, distribution, trading, exports, and provides the regulatory instrument to put retail. Such inclusive linkages bridge the gap in effect policy objectives. The next section between the transnational agribusinesses and conceptualizes and assesses the conditions agro-based companies and the large population through which conditional drivers of inclusive of smallholder farmers across the entire agri- agribusiness are facilitated. food system. To situate discussion on the enablers of inclusive agribusiness, this study drew from SUCCESS ENABLERS FOR INCLUSIVE two previous published papers. The first is the AGRIBUSINESS paper of Christy et al. (2009), which proposes an integrated model based on a “Hierarchy Success enablers of inclusive agribusiness of Enabling Needs.” The hierarchy classifies can be characterized as a set of policies, rules and enablers in terms of the degree to which they regulations, values, institutions, and conditions facilitate inclusiveness, into three categories— that collectively facilitates deeper inclusion essential, important, and useful. The essential and involvement of smallholder farmers in enablers define the most necessary conditions the agribusiness sector. These enablers have that are needed to be achieved for the functioning Asian Journal of Agriculture and Development, Vol. 13 No. 2 11 of other enablers. Immediate (important) both conceptual models to create a more enablers are second-order conditions that comprehensive and distinctly delineated are corollary to the essential enablers. Useful categorization of the various enablers of enablers refer to sufficient conditions that will inclusive agribusiness. This integrated model complement the antecedent enablers. (Figure 1) provides a framework to map out The various enabling conditions can be projects and strategize policy directions and further grouped according to the interactive interventions aimed at greater inclusion of relationship of different institutions and sectors smallholders across the agri-food system affecting the entire agri-food system. The and correspondingly the enabling conditions second paper is that of Gross et al. (2000), that shape these links. A way to interpret the which proposes a socio-organizational structure framework is looking across directionality model that emphasizes impact and structural along the dimensions. Vertical directionality differences from the smallest unit (individual underscores the organizational progression of and household at the micro level), to a much enablers from specific sub-sectors to broader bigger collective (communities, district at meso level where institutions operate. Horizontal level), up to the largest scope (national or global directionality can be understood in terms of at the macro level). tiered conditions of inclusiveness, defined in This paper proposes a new integrated terms of overcoming participation constraints matrix framework (Figure 1), juxtaposing and facilitating access to markets, from the

Figure 1. Conceptual framework for the enablers of inclusive agribusiness

, 12 Paul S. Teng and Jurise A.P. Oliveros

most useful to the most essential conditions. small farmers both at the national and regional Although the framework shows defined level. Policies comprise an entire system categories of enablers, applying to real-world of principles and goals that set direction context would entail a much seamlessly for decisions to be implemented to achieve interlinked categories that also rely on varying beneficial outcomes for all stakeholders mechanisms of inclusivity. But on broader involved. At the very core of policy formulation strokes, the integrated model provides a means and governance are the state and regional to chart or plan policy initiatives aimed at institutions that serve the pivotal role of helming greater inclusion of smallholders. negotiation of agreements, provision of laws to On the whole, the subject area of inclusive define rights, enforcement of legislation and agribusiness and agri-food value chain is at its contracts, administration of resources, and nascent but rapidly transforming stage that is implementation of rules and regulations across why comprehensive research within the Asian industries (Christy et al. 2009). context is relatively scarce, attributed to the As ASEAN moves towards a more difficulty in tracing and monitoring existing connected and globally competitive region, agribusiness system in the region. This study policies that contribute to more liberalized aims to fill the research gap by developing a trade and investment regimes are likely to open comprehensive conceptual framework that gateways for foreign agribusinesses to create can serve as guidepost towards more empirical upstream and downstream links with small research inquiry. The conceptual framework is players across the food value chain. Being further explicated in the ensuing section. integrated and open to trade becomes directly associated with growth and development of a Macro Level Enablers of Inclusiveness country. For instance, when Vietnam embarked on socio-economic reform (doi moi) in the Enablers at macro level include mid-1980s, and pursued trade liberalization, national and regional policies, infrastructure the economy, including the agriculture development, and political environment. sector, experienced dramatic growth (Mai Supportive policies are deemed as necessary 2004). This has enabled large multinational conditions because they lay the groundwork corporations (MNC) in the food retail sector and provide the mechanism to operationalize such as Carrefour to expand operations and large-scale cross-sectoral goals. Both physical work with small-scale producers in Indonesia and digital infrastructure development, for (Vorley et al. 2009) and other ASEAN-based instance, require necessary funding to be agribusinesses like Wilmar and San Miguel implemented and therefore require, a priori, Corporation to extend operations within and policies, which enable appropriate allocations outside the region. Policies that lead to deeper from public coffers across countries. Political integration and equitable development would be environment is regarded useful because of its expected generally to support further inclusion relative importance as enabler of smallholder of smallholder farmers, across higher-valued inclusiveness as well as the evident challenge activities in agri-food systems (Vorley et al. in attaining such a goal. 2009). Regional agenda such as the AEC reflect Essential enablers– national and regional the goal of a single market and a regionally policies: One of the foundations of inclusive competitive bloc, and are expected to address agribusiness centers on policies, which are poverty and protect vulnerable groups through effective to foster equity and inclusion among capacity building, SME development, and Asian Journal of Agriculture and Development, Vol. 13 No. 2 13 promotion of pro-poor projects. channeled towards appropriate sectors such as Immediate (important) enabler– infrastructure, business (industry), education, infrastructure development: Physical smallholders, and other social sectors. These infrastructure is key to connect food suppliers policies should be underpinned by good and producers across food supply chains. The governance to ensure that development past decades have seen a rapid influx of large programs are properly managed and resources agro-based enterprises or big supermarkets are appropriately allocated. Furthermore, towards the developing world, particularly in foreign businesses take into account the overall the Southeast Asian countries like Indonesia, political environment and associated country Malaysia, Thailand, and Vietnam. The risks in considering investment expansion. modernization of the food retail system had The quality of governance is a complementary prompted specific approaches on retail diffusion factor that enables inclusion of smallholders and the goods procurement system has coupled primarily because the agribusiness sector does smallholder producers to large agribusinesses not function in silos, conducting business (Reardon, Timmer, and Mintend 2012). Physical operations whether it is inclusive or not is infrastructure such as roads, railways, electric subject to bureaucratic processes. A government power, energy, and ports are crucial vehicles that lacks transparency and sub-par regulatory to provide access to markets. The vegetable standards adds to risk and transaction costs for industry in Indonesia relies heavily on transport business. by roads and ports for distribution of goods. In contrast with developed economies, Modern retailers and major food distributors low-income developing economies such as (e.g., Sukanda Jaya) in Indonesia procure fresh Cambodia, Lao PDR, and Myanmar score produce supplies from vegetable farmers in poorly in governance, and this impedes inclusive South Sulawesi and Surabaya through reefer agribusinesses particularly in these countries containers and non-refrigerated trucks (White with large populations dependent on the agri- et al. 2007). food sector (MacIntyre 2003). Advanced Near the turn of the 20th century, the industrial countries have interweaving sets of usage of internet, mobile communication, and institutions that serve to either constrain or rein computing power has experienced exponential in state power and thereby push governments growth globally (FAO 2013a). Although digital to become more effective and efficient. In some infrastructure developed much later than ASEAN countries, the consistently weak and physical infrastructure in ASEAN, the adoption inefficient quality of governance is a major rate of digital technology as an information and stumbling block to realizing greater inclusive communication tool is of growing importance agribusiness. for small-scale farmers. In ASEAN countries such as Indonesia, Thailand, and Vietnam, Meso Level Enablers of Inclusiveness short messaging service (SMS) through mobile Enablers at the meso level include business phones has become a common means to gain climate, investment and financial services, and information on agricultural commodities business linkages. (Bambawale and Ng 2016). Essential enablers–business norms, rules, Useful enabler–political environment: and regulation: ASEAN is characterized by Attaining inclusive agribusiness necessitates its socio-economic, political, historical, and holistic and multi-pronged policy actions cultural heterogeneity. Such diversity also 14 Paul S. Teng and Jurise A.P. Oliveros

engenders a complex business environment firms, securing capital is difficult because for agro-based enterprises (Christy et al. agriculture-based business ventures are deemed 2009). More noticeably among low-income generally to be high risk and accompanied with agriculture dependent economies, there is low returns to capital (Christy et al. 2009). general dissatisfaction about indicators like From the perspective of smallholder producers, customs procedures, movement of goods, local access to financial services is necessary in order investor protection, laws and regulation, as well to purchase production inputs to be able to start as business incentives offered by government. cultivation and generate income. Besides input Bureaucratic processes on importation and capital, the smallholder also requires financial exportation increase uncertainties and impede access to manage irregular cash flow, insurance trade across the supply chains (Teng et al. 2015a). for risk due to unexpected events, and land lease, The aim of a business-enabling environment is among others. However, provision of credit to entice large enterprises to pursue trade and from large commercial financial institutions investment, as well as directing their operations is rigorously constrained because of the high- towards a country that will link local business risk probability of smallholder farmers. There across the upstream and downstream activities is need for more “inclusive finance,” which of the business. means “intensifying the depth of outreach One specific step towards the goal and providing services to marginalized of facilitating cross-border trade is the groups, especially women, reaching beyond implementation of the “National Single conventional microcredit to the people at the Window,” which accelerates trade procedures bottom of the economic pyramid” (FAO 2013b). and reduces corruption. ASEAN acknowledges Useful enablers–business linkages: There that expediting customs and clearance will seem to be many incentives that serve as lead to more effective and efficient trade. impetus for agribusinesses to form linkages with Improving these processes will also lessen smallholder farmers. Important ones are land the transaction costs of engaging business for access, supply expansion, and financial access. traders and foreign corporations. ASEAN is In the ASEAN region, land access is affected by endeavoring to establish an ASEAN Single legal impediments that inhibit foreign nationals Window (ASW) to better facilitate trade and to conduct agribusiness activities, as discussed deepen integration across economies (Koh previously in this paper. and Mowerman 2013). The ASW potentially provides an integrated system that links with Micro Level Enablers of Inclusiveness the National Single Window in individual AMS; it being the main mechanism of single Micro level enablers refer to the smallest point entry for documentation processing that units through which institutions and conditions operates within individual countries (Koh could influence the level of inclusiveness in and Mowerman 2013). This is a major way to agribusiness. This may refer to small farming connect businesses in the region. The entire agri- units that focus on specific agricultural sub- food business sector is likely to benefit from sector like crops, fisheries, or livestock. the improved connectivity, and for smallholder Essential enabler–land tenure and property producers, more opportunities to link up with rights: The productivity of the agriculture supply chains. sector depends heavily on the optimal use of the Immediate (important) enabler– investment factors of production, particularly agricultural and financial services: For most agribusiness land. For the majority of the poor smallholder Asian Journal of Agriculture and Development, Vol. 13 No. 2 15 farmers, land purchase is less pragmatic and improving the adoption of technologies and highly risky since the market value of land could management practices. There is thus high be greater than their returns from production. need for new approaches on capacity building Due to the less accessible nature and notable and information and knowledge dissemination entry barriers in the land sale market for the program to narrow the gap. small-scale farmer, there has been significant Philippine-based Jollibee Corporation attention over land rental markets as a means Foundation has strived to assist smallholders in to access land (Quan 2006). Moreover, the accessing markets and increasing their income land lease market thrives in the region due to through the Farmer Entrepreneurship Program market imperfections (poorly defined property (FEP) (Jollibee Group Foundation 2015). The rights, inefficient land titling, restrictions on program offers education and training for transactions) as well as the unequal distribution farmers, imparting them with business skills of land that persist across ASEAN member that enable links to institutional markets such as countries (Childress 2004). The lease market restaurants, supermarkets, and food processing would then appear to provide the most optimal firms. FEP also enables farmers to learn agro- means for smallholders and rural poor to access enterprise skills, explore partnership and land. collaborative initiatives, as well as expand their Immediate (important) enablers– training through collaborations with academic and R&D transfer: institutions. Technology transfer and dissemination are critical enablers to develop technological CONCLUDING REMARKS know-how and increase productivity among smallholder farmers. They also serve as The issues of development and pre-conditions toward wider engagement in sustainability have increasingly provided other business activities across the agri-food impetus for smallholder inclusion in landscape. Studies have shown that greater agribusiness. Among all other sectors, investment in technology diffusion and agriculture remains a fundamental engine agricultural research and extension lead to for development, given the sector’s integral increased productivity growth in agriculture contribution to economic growth, livelihood, (CAPSA 2014). and environmental sustainability (World Bank The case of Coco Technologies, a privately 2008). Agriculture-dependent rural poor farmers held company that specializes in products from are a large subset of the population in the ASEAN coconut husks in the Philippines, exemplifies region’s developing smallholder agriculture, how technology diffusion can result in overall and therefore is one powerful means for sub- welfare improvement (Ganchero and Manapol populations to break out of poverty and . 2007). Many studies support how generated growth Useful enablers–capacity building and from the agriculture sector proffers a greater human resource development: The adoption degree of effectiveness in terms of reducing of agricultural technology and a concomitant poverty than other sectors (Seville, Buxton, and improvement in production efficiency has been Vorley 2011). This impetus places emphasis closely associated with the characteristics and beyond economic gains and business growth capacity of the labor force. A higher educational towards inclusive, equitable, and convergent level among farmers has been shown to boost development that benefits all segments of the income growth (Marlaine et al. 1980) by 16 Paul S. Teng and Jurise A.P. Oliveros

population. Connecting smallholder farmers above profit-maximizing goals to support larger with dynamic and well-functioning markets responsibility to society such as human rights, across the agri-food chain serves a pivotal role labor standards, and environment sustainability in long-term strategies to better and uplift the (Srivastava et al. 2012). Within this ethical and welfare of many vulnerable groups from abject moral context of CSR, involving smallholders in poverty and food insecurity. In the longer term, the business structure aligns with agribusiness’ rising beyond corporate social responsibility social accountability. This has, until recently, (CSR) is the notion that core agribusiness needs appeared to be a main driver for agribusiness to to include small farmers as part of business use CSR as a means to be inclusive. plans in order to sustain the business. Experience in the ASEAN region has The disconnect between large agro- shown that top policy support is an important based firms and smallholder farmers should catalyst for change, either at the level of the be a thing of the past as the agribusiness ASEAN Summit (Heads of State) or the AMAF sector has acknowledged the growing need (ASEAN Ministers Meeting on Agriculture for a deeper involvement of an expanding and ). Policy changes have been population of smallholders in the agribusiness beneficial open pathways and corridors for sector. Smallholder farmers, particularly in deeper trade and higher levels of investment the developing economies, offer a viable across the region. Regional policy measures opportunity to secure the multiple sources and regulatory frameworks have lain the of food supply (IFC 2013). However, there groundwork to support inclusive agribusiness. are a number of constraints that contribute However, there remain policy gaps that to the disinclination of agribusiness to hamper the gains of economic convergence engage with smallholder farmers. The areas and consequent trickle down of development of concern include inconsistent output, towards the vulnerable and marginalized sectors dispersed production, weak negotiating stance, of population such as the rural, poor small-scale constrained capacity to upgrade and qualify in farmers. The full and effective functioning of formal market requirements, and less access to the essential policy enablers is being impeded technology and financial services (Vorley et al. by weak institutions and poor implementation 2009). of policy measures. This has direct bearing What are the motivating factors for inclusion on the important enablers of smallholder of smallholders in the agribusiness structure? inclusion such as financial access, credit, and For agribusinesses, one of the main motivations infrastructure investment. Poor implementation is market-driven—to secure supply. Taking of measures and regulatory frameworks impede into account that production of agricultural progress, particularly in resource allocation. commodities is susceptible to risk (e.g., weather This affects agricultural development goals vagaries, pest infestation, natural hazards), and the capability of smallholder farmers ensuring a stable supply base and diversifying to develop linkages within the agribusiness sources of supply contributes to improved system. Adapting to the changing structure of food availability (Vorley et al. 2009). The the agribusiness landscape would necessitate other business case for smallholder inclusion is optimizing the potential gains on these linkages motivated by a more profound value system as to realize the greater benefits for smallholders well as the socio-economic and political impact in the long run. on the business activities of (especially) large agri-food companies. The CSR concept rises Asian Journal of Agriculture and Development, Vol. 13 No. 2 17

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