**AVC of Fisheries**

[4] Spiegel-Roy P, Goldschmidt EE. Biology of Citrus. Cambridge University Press;

[5] FAOSTAT. Download [Internet]. 2014. Available from: http://faostat3.fao.org/download/

[6] Agriculture Marketing Information Service. Crop Production Data 1947-1948 to 2009 - 2010 [Internet]. 2014. Available from: http://amis.pk/Agristatistics/production.aspx

[7] Agriculture Marketing Information Service. District Wise Data of Citrus [Internet]. 2014. Available from: http://amis.pk/Agristatistics/DistrictWise/Citrus.html [Accessed: 20

[8] Pakistan Horticulture Development & Export Company (PHDECo.). (2005). Citrus Marketing Strategy. Retrieved from http://www.phdec.org.pk/MktStrategies/Citrus.pdf

[9] Pakistan Bureau of Statistics. Agricultural Statistics of Pakistan 2010-11 [Internet]. 2014. Available from: http://www.pbs.gov.pk/sites/default/files/agriculture\_statistics/publications/Agricultural\_Statistics\_of\_Pakistan\_201011/tables/table45.pdf [Accessed: 22

[10] Government of Punjab. Punjab Agricultural Statistics 2012-13, P. Directorate of Agricul-

[12] FAOSTAT. Download [Internet]. 2017. Available from: http://faostat3.fao.org/download/

[13] Government of South Australia. PIRSA Horticulture [Internet]. 2011. Available from: http://www.pir.sa.gov.au/horticulture/horticulture\_crop/citrus2/fresh\_citrus\_report

[14] FAOSTAT. Compare Data [Internet]. 2014. Available from: http://faostat3.fao.org/

[15] Chaudry MS. Opportunities and Constraints in the Production, Marketing and Export of Citrus in Punjab. Faisalabad: Faculty of Agricultural Economics and Rural Sociology,

[16] Ali T. Marketing of Citrus Fruit in Pakistan. Karachi, Pakistan: Department of Commerce,

[17] Ministry of National Food Security and Research. Fruit, Vegetables and Condiments

[18] Agriculture Marketing Information Service. Agro Based Industries in Punjab [Internet]. 2014. Available from: http://amis.pk/AgroIndustries.aspx [Accessed: 17 January 2014]

Statistics of Pakistan 2013-14, O.E.W. (MNFSR), Editor. 2015: Islamabad

[19] Ministry of Food and Agriculture. Agriculture Statistics of Pakistan 2008-09. 2011

ture Crop Reporting Service, Editor. Lahore, Pakistan. 2013

[11] The World Bank. GNI Per Capita, Atlas Method (current US\$). 2015

Cambridge, UK. 1996

56 Agricultural Value Chain

December 2014]

December 2014]

Q/QC/E [Accessed: 20 December 2014]

FB/CC/E [Accessed: 10 January 2017]

download/T/TP/E [Accessed: 22 December 2014]

[Accessed: 26 October 2011]

University of Agriculture; 2004

University of Karachi; 2004

[Accessed: 20 December 2014]

**Chapter 4**

**Provisional chapter**

**The Value Aspect of Reallocating Seafood Freight from**

A case study elaborates on the project organization promoting change of transport mode in a food chain from a value perspective. This project organization may perspectively be viewed as a supply chain with value conceptions different from the everyday seafood supply chain it is meant to develop. Value is in this project context revealed as an intersubjective complex phenomenon, founded in that value conceptions by actors located at different locations in the supply chain. This renders customer value as one of many dynamic value components in this project organization. Value embedded in a supply chain is therefore always a source of uncertainty, a subjective perspective; it cannot be considered as a clear functional purpose in projects aimed at developing food supply. The route to reallocate seafood freight should therefore focus on organizing interconnectivity to support networking and the project members accepting that the project outcome

**Keywords:** food logistics, sustainability, short sea shipping, intermodal transport,

**The Value Aspect of Reallocating Seafood Freight from** 

DOI: 10.5772/intechopen.68779

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution,

© 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use,

distribution, and reproduction in any medium, provided the original work is properly cited.

and reproduction in any medium, provided the original work is properly cited.

Established 45 years ago, the Norwegian aquaculture industry has progressively grown, which has now become one of the most important industries in Norway's economy. Nowadays, most of the fresh salmon products are transported on roads. This mode of transport involves challenges such as risk associated with frequent accidents on these wintery Norwegian roads, low quality of the transport service purchased on an open market managed by seafood product customers and limited environmental sustainability. Short sea shipping (SSS) offers an

**Road to Sea Transport**

**Road to Sea Transport**

Arild Hoff

and Arild Hoff

**Abstract**

is emergent.

**1. Introduction**

Per Engelseth, Irina V. Karlsen, Shulin Huang and

Additional information is available at the end of the chapter

customer value, supply chain management

Additional information is available at the end of the chapter

Per Engelseth, Irina V. Karlsen, Shulin Huang

http://dx.doi.org/10.5772/intechopen.68779

**Provisional chapter**

### **The Value Aspect of Reallocating Seafood Freight from Road to Sea Transport Road to Sea Transport**

**The Value Aspect of Reallocating Seafood Freight from** 

DOI: 10.5772/intechopen.68779

Per Engelseth, Irina V. Karlsen, Shulin Huang and Arild Hoff and Arild Hoff Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

Per Engelseth, Irina V. Karlsen, Shulin Huang

http://dx.doi.org/10.5772/intechopen.68779

#### **Abstract**

A case study elaborates on the project organization promoting change of transport mode in a food chain from a value perspective. This project organization may perspectively be viewed as a supply chain with value conceptions different from the everyday seafood supply chain it is meant to develop. Value is in this project context revealed as an intersubjective complex phenomenon, founded in that value conceptions by actors located at different locations in the supply chain. This renders customer value as one of many dynamic value components in this project organization. Value embedded in a supply chain is therefore always a source of uncertainty, a subjective perspective; it cannot be considered as a clear functional purpose in projects aimed at developing food supply. The route to reallocate seafood freight should therefore focus on organizing interconnectivity to support networking and the project members accepting that the project outcome is emergent.

**Keywords:** food logistics, sustainability, short sea shipping, intermodal transport, customer value, supply chain management

#### **1. Introduction**

Established 45 years ago, the Norwegian aquaculture industry has progressively grown, which has now become one of the most important industries in Norway's economy. Nowadays, most of the fresh salmon products are transported on roads. This mode of transport involves challenges such as risk associated with frequent accidents on these wintery Norwegian roads, low quality of the transport service purchased on an open market managed by seafood product customers and limited environmental sustainability. Short sea shipping (SSS) offers an

Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons

alternative transportation solution being characterized by a lower level of pollution than road transport and providing sufficient transport speed to market. This case focuses on the seafood cluster including the island municipalities of Frøya and Hitra as well as the Rørvik municipality on the coast of central Norway. Export volumes are expected to experience a fivefold increase from these two industrial clusters. If these goods are continued to be transported by land, this may in addition to that road transport is considered not environmentally sustainable also lead to increased deterioration of roads.

the government, aquaculture and logistic service providers' side. While the current dominant road transport mode favours the use of low-cost foreign trucking service providers, the establishment of a SSS with short distance trucking feeder routes favours the local Norwegian truck

The Value Aspect of Reallocating Seafood Freight from Road to Sea Transport

http://dx.doi.org/10.5772/intechopen.68779

61

The restructuring to SSS will take some time. However, the creation of the new modern harbour facility at the industrial park on the small island of Jostenøya (see **Figure 1**) within the island municipality of Hitra greatly increases the efficiency of transporting through this mode, with direct loading from the seafood producers established at the industrial park with its adjacent harbour and short road transport from producers located at a few kilometres'

Sea transportation will in the proposed start-up phase be as a supplement to road transportation. Currently, the participants of the project are actively seeking the opportunities for return cargo flows. There are a lot of opportunities, for example, fruit and vegetable freight flows from the EU countries to Mid-Norway and Western Norway that can be combined together. Even though the new production facility implies an adjacent harbour location, the change to SSS is not decided upon yet; it is subject to active discussion in the industrial network. One major reason for this is that freight in most cases of seafood export in the region is commonly determined by the customer. The commonly used ex works clause also implies that it is the distant customers, not being really aware of production and logistics infrastructure concerns

This means that a change of road to SSS transport involves convincing the seafood producers' foreign customers. Most of these importers are located in the EU and currently have their goods transported door-to-door by trucks. This is clearly, except for the frequent accidents on wintery Norwegians roads (see **Figure 2**), a convenient transport solution. Furthermore, the seafood producers and exporters are fundamentally indifferent to how their goods get transported, by which trucking company, it is only when they take into consideration societal

in Norway that in practice determine how the freight is to be transported.

**Figure 1.** The projected industrial park and harbour facility at Hitra.

companies since they are already established in this region.

distance from this new harbour facility.

In autumn 2014, as a result of cooperation between Kristiansund and Nordmøre Harbour company and North Trøndelag Harbour Rørvik IKS, the *Coastal Harbour Alliance* was established. The mission of this alliance is to provide a satisfactory volume for fresh fish export to reallocate the Hitra/Frøya and Rørvik municipality freight flows from road to sea, involving two closely located ports of origin. A key technical facilitator of this transport solution is efficient intermodal transport, using the same container carried on at least two different transport modes. The main focus of the project is to find a solution satisfying transport demands of the end customers in the everyday seafood supply chain in terms of frequency, cost and reliability.

Based on a case study by Engelseth et al. [1], this chapter discusses further the value aspect of this proposed freight reallocation from road to sea transport. This development organization is separate from the supply chain itself that it aims to change. The applied road transport solution involves considering a range of factors associated with customer preferences as well as a wider concept of societal intertwined with environmental value. Value is a perception. In a supply network, different actors hold different perceptions of value associated with reallocating seafood freight from road to sea transport. Initially, these factors are indicated and discussed. Factors impacting on these value perceptions are varied and include CO2 emissions, degree of experienced uncertainty, experienced accident rates, demands regarding time to market, product quality objectives, logistical feasibility and costs and business relationship strength. This consideration of value as a transient phenomenon in project development of food chains is the starting point of our investigation. The chapter considers this by first discussing freight reallocation as a networked project organization. This section establishes the current status quo of the project in its networked context pointing to fundamental networkrelated challenges of freight reallocation to the SSS mode. This is followed by development of the concept of value in such an organizational setting. This is followed by an introduction of SSS as transport mode. The final section before conclusion describes the actual freight modes applied in the case from a supply chain perspective, involving both logistical and inter-organizational integration concerns.

### **2. Freight reallocation: project, network and organizations**

The proposed freight reallocation from road to sea transport is organized as a project. The possibilities of reallocation of seafood freight flows from road to sea here are great due to favourable allocation of key ports in the municipalities' neighbourhood and efforts and interest from the government, aquaculture and logistic service providers' side. While the current dominant road transport mode favours the use of low-cost foreign trucking service providers, the establishment of a SSS with short distance trucking feeder routes favours the local Norwegian truck companies since they are already established in this region.

alternative transportation solution being characterized by a lower level of pollution than road transport and providing sufficient transport speed to market. This case focuses on the seafood cluster including the island municipalities of Frøya and Hitra as well as the Rørvik municipality on the coast of central Norway. Export volumes are expected to experience a fivefold increase from these two industrial clusters. If these goods are continued to be transported by land, this may in addition to that road transport is considered not environmentally sustain-

In autumn 2014, as a result of cooperation between Kristiansund and Nordmøre Harbour company and North Trøndelag Harbour Rørvik IKS, the *Coastal Harbour Alliance* was established. The mission of this alliance is to provide a satisfactory volume for fresh fish export to reallocate the Hitra/Frøya and Rørvik municipality freight flows from road to sea, involving two closely located ports of origin. A key technical facilitator of this transport solution is efficient intermodal transport, using the same container carried on at least two different transport modes. The main focus of the project is to find a solution satisfying transport demands of the end customers in the everyday seafood supply chain in terms of frequency, cost and

Based on a case study by Engelseth et al. [1], this chapter discusses further the value aspect of this proposed freight reallocation from road to sea transport. This development organization is separate from the supply chain itself that it aims to change. The applied road transport solution involves considering a range of factors associated with customer preferences as well as a wider concept of societal intertwined with environmental value. Value is a perception. In a supply network, different actors hold different perceptions of value associated with reallocating seafood freight from road to sea transport. Initially, these factors are indicated and

discussed. Factors impacting on these value perceptions are varied and include CO2

**2. Freight reallocation: project, network and organizations**

sions, degree of experienced uncertainty, experienced accident rates, demands regarding time to market, product quality objectives, logistical feasibility and costs and business relationship strength. This consideration of value as a transient phenomenon in project development of food chains is the starting point of our investigation. The chapter considers this by first discussing freight reallocation as a networked project organization. This section establishes the current status quo of the project in its networked context pointing to fundamental networkrelated challenges of freight reallocation to the SSS mode. This is followed by development of the concept of value in such an organizational setting. This is followed by an introduction of SSS as transport mode. The final section before conclusion describes the actual freight modes applied in the case from a supply chain perspective, involving both logistical and inter-orga-

The proposed freight reallocation from road to sea transport is organized as a project. The possibilities of reallocation of seafood freight flows from road to sea here are great due to favourable allocation of key ports in the municipalities' neighbourhood and efforts and interest from

emis-

able also lead to increased deterioration of roads.

reliability.

60 Agricultural Value Chain

nizational integration concerns.

The restructuring to SSS will take some time. However, the creation of the new modern harbour facility at the industrial park on the small island of Jostenøya (see **Figure 1**) within the island municipality of Hitra greatly increases the efficiency of transporting through this mode, with direct loading from the seafood producers established at the industrial park with its adjacent harbour and short road transport from producers located at a few kilometres' distance from this new harbour facility.

Sea transportation will in the proposed start-up phase be as a supplement to road transportation. Currently, the participants of the project are actively seeking the opportunities for return cargo flows. There are a lot of opportunities, for example, fruit and vegetable freight flows from the EU countries to Mid-Norway and Western Norway that can be combined together. Even though the new production facility implies an adjacent harbour location, the change to SSS is not decided upon yet; it is subject to active discussion in the industrial network. One major reason for this is that freight in most cases of seafood export in the region is commonly determined by the customer. The commonly used ex works clause also implies that it is the distant customers, not being really aware of production and logistics infrastructure concerns in Norway that in practice determine how the freight is to be transported.

This means that a change of road to SSS transport involves convincing the seafood producers' foreign customers. Most of these importers are located in the EU and currently have their goods transported door-to-door by trucks. This is clearly, except for the frequent accidents on wintery Norwegians roads (see **Figure 2**), a convenient transport solution. Furthermore, the seafood producers and exporters are fundamentally indifferent to how their goods get transported, by which trucking company, it is only when they take into consideration societal

**Figure 1.** The projected industrial park and harbour facility at Hitra.

Being a statement of subjectivity, the concept of "customer value" is inherently complex. The human mind and its preferences are no objective phenomenon; preferences are contingent and change. Value is considered in this study as always intersubjective. This is vital, because shared understanding of what constitutes customer value in the conglomerate organization of a supply chain also represents a binding force. Value is an integrator, a boundary object that helps to integrate in the supply chain. It plays the role of potential, to secure recurrent purchases through

The Value Aspect of Reallocating Seafood Freight from Road to Sea Transport

http://dx.doi.org/10.5772/intechopen.68779

63

Customer value is in business practice clearly a complex phenomenon. Supply chains are here considered as linkages characterized by systemic integration, an organizational structure. Being complex means that value from the perspective of the customer is seen as a process; it is emergent. Since value is always in flux, for the supplier, it is also a moving business target. Clearly, what is written here represents a particular process approach to appreciating "value" in supply chains and thereby managing them. Given that customer value is the key objective in a supply chain and that we have already indicated that customer value is customer perception of benefits balanced against costs of acquisition and use, this in itself is regarded a process. Because, the customer evaluating follows a timeline, it is a learning process that emerges through interaction in the business relationship between the customer and the supplier. Furthermore, in line with Richardson's [4] view that no firm is an island and in line with Håkansson and Persson [5] who describe firms' interaction in supply chains as integrated hubs of interaction with various heterogeneous suppliers and customers, this entails some level of network complexity. This complexity resides at different levels of QUERY. Perrow [6] classifies levels of analysis, starting from the individual level, through group, department, division, organization, inter-organization and finally at organizational set. The "inter-organizational" level is commonly termed as the relationship. The organizational set is commonly termed as "network" or "chain" in supply chain literature, a systemic configuration of different firms working together. In this study, this network is a time-limited loosely coupled project organization bound by a common functionality of developing sustainable seafood transport. All these layers of reality in business can be considered as subject to complexity, and they do have impact on perceptions of what in practice is customer value in different ways. What is vital is having a fundamental understanding about the "value", which is dynamic in real life and can be found at different organizational levels. Furthermore, the characteristics of value at these levels interact with each other. Clearly this paves the way for a research proposition regarding what characterizes such interdependencies, but this is out of bounds of this book chapter. In this chapter, we seek to address practical issues regarding perceptions of value associated with reallocating freight from road to SSS transport. This implies the need to simplify our analytical framework. In relation to the levels of analysis, we concentrate on customer value at the organizational and network levels as well as the relational level that binds firms together.

The choice of omitting the more personal levels of analysis is because of the data, which mainly encompasses value perceptions regarding the different organizations involved in the network, regarding the research issue at hand. These perceptions are considered embedded in a network that is characterized, in line with Gadde et al. [7], by its atmosphere. A key feature of network atmosphere is the level of trust influencing the willingness to integrate.

continuous customer satisfaction achievement.

These levels of analysis are illustrated in **Figure 3**.

**Figure 2.** Seafood on Norwegian roads is prone to frequent accidents.

values promoted to their own export market customers such as retailers that they may tend to prefer sea transport solutions. This, however, may also demand traceability to verify the use of transport modes. Such choices may accordingly benefit the reputation of the firms from corporate social responsibility standpoint.

To reallocate this freight from road to sea involves accordingly a marketing effort on behalf of Kristiansund and Nordmøre Harbour company that owns the in-development industrial park and harbour facility and the Hitra municipality supporting the establishment of this production and port service infrastructure. Thus, this challenge also encompasses the project organization of the Coastal Alliance to reallocate seafood freight from Hitra and Frøya municipalities from road to sea transport. These are the main stakeholders holding a value perception regarding the active use of the new harbour facility at Hitra. It is accordingly a project-related challenge to convince the foreign importers of seafood from the Hitra and Frøya facilities to import their goods using SSS. For this reason, the customer value perspective of this freight reallocation is vital. However, since many networked supply chain actors involved in the potentiality of developing transport from Hitra to the markets have varying conceptions of value, we must also scrutinize this concept of "value". We then turn to consider what we mean by "customer value" in this organizational as well as societal context. This is followed by discussing the environmental concerns related to reallocating freight to SSS through this project.

### **3. On "customer value" and value in general**

The notion of "value" is essential in all forms of business. Simply speaking value may be considered as "something that people regard highly, cherish or protect" [2]. This implies a semiotics understanding of value, associated with texts and conversation. In the business community, the economic aspect of value is highlighted. From a supply chain management perspective, pertinent to our inquiry, what is highly regarded, cherished or protected is associated with perception of supply benefits weighed rationally speaking against the costs of perceived ownership. It is a balancing game of perceived positive and negative outcomes of an acquisition. Christopher [3] terms this balancing in the organizational context of a supply chain as "customer value". Being a statement of subjectivity, the concept of "customer value" is inherently complex. The human mind and its preferences are no objective phenomenon; preferences are contingent and change. Value is considered in this study as always intersubjective. This is vital, because shared understanding of what constitutes customer value in the conglomerate organization of a supply chain also represents a binding force. Value is an integrator, a boundary object that helps to integrate in the supply chain. It plays the role of potential, to secure recurrent purchases through continuous customer satisfaction achievement.

Customer value is in business practice clearly a complex phenomenon. Supply chains are here considered as linkages characterized by systemic integration, an organizational structure. Being complex means that value from the perspective of the customer is seen as a process; it is emergent. Since value is always in flux, for the supplier, it is also a moving business target.

values promoted to their own export market customers such as retailers that they may tend to prefer sea transport solutions. This, however, may also demand traceability to verify the use of transport modes. Such choices may accordingly benefit the reputation of the firms from

To reallocate this freight from road to sea involves accordingly a marketing effort on behalf of Kristiansund and Nordmøre Harbour company that owns the in-development industrial park and harbour facility and the Hitra municipality supporting the establishment of this production and port service infrastructure. Thus, this challenge also encompasses the project organization of the Coastal Alliance to reallocate seafood freight from Hitra and Frøya municipalities from road to sea transport. These are the main stakeholders holding a value perception regarding the active use of the new harbour facility at Hitra. It is accordingly a project-related challenge to convince the foreign importers of seafood from the Hitra and Frøya facilities to import their goods using SSS. For this reason, the customer value perspective of this freight reallocation is vital. However, since many networked supply chain actors involved in the potentiality of developing transport from Hitra to the markets have varying conceptions of value, we must also scrutinize this concept of "value". We then turn to consider what we mean by "customer value" in this organizational as well as societal context. This is followed by discussing the environmental concerns related to reallocating freight to

The notion of "value" is essential in all forms of business. Simply speaking value may be considered as "something that people regard highly, cherish or protect" [2]. This implies a semiotics understanding of value, associated with texts and conversation. In the business community, the economic aspect of value is highlighted. From a supply chain management perspective, pertinent to our inquiry, what is highly regarded, cherished or protected is associated with perception of supply benefits weighed rationally speaking against the costs of perceived ownership. It is a balancing game of perceived positive and negative outcomes of an acquisition. Christopher [3] terms this balancing in the organizational context of a supply chain as "customer value".

corporate social responsibility standpoint.

62 Agricultural Value Chain

**Figure 2.** Seafood on Norwegian roads is prone to frequent accidents.

SSS through this project.

**3. On "customer value" and value in general**

Clearly, what is written here represents a particular process approach to appreciating "value" in supply chains and thereby managing them. Given that customer value is the key objective in a supply chain and that we have already indicated that customer value is customer perception of benefits balanced against costs of acquisition and use, this in itself is regarded a process. Because, the customer evaluating follows a timeline, it is a learning process that emerges through interaction in the business relationship between the customer and the supplier. Furthermore, in line with Richardson's [4] view that no firm is an island and in line with Håkansson and Persson [5] who describe firms' interaction in supply chains as integrated hubs of interaction with various heterogeneous suppliers and customers, this entails some level of network complexity. This complexity resides at different levels of QUERY. Perrow [6] classifies levels of analysis, starting from the individual level, through group, department, division, organization, inter-organization and finally at organizational set. The "inter-organizational" level is commonly termed as the relationship. The organizational set is commonly termed as "network" or "chain" in supply chain literature, a systemic configuration of different firms working together. In this study, this network is a time-limited loosely coupled project organization bound by a common functionality of developing sustainable seafood transport. All these layers of reality in business can be considered as subject to complexity, and they do have impact on perceptions of what in practice is customer value in different ways. What is vital is having a fundamental understanding about the "value", which is dynamic in real life and can be found at different organizational levels. Furthermore, the characteristics of value at these levels interact with each other. Clearly this paves the way for a research proposition regarding what characterizes such interdependencies, but this is out of bounds of this book chapter.

In this chapter, we seek to address practical issues regarding perceptions of value associated with reallocating freight from road to SSS transport. This implies the need to simplify our analytical framework. In relation to the levels of analysis, we concentrate on customer value at the organizational and network levels as well as the relational level that binds firms together. These levels of analysis are illustrated in **Figure 3**.

The choice of omitting the more personal levels of analysis is because of the data, which mainly encompasses value perceptions regarding the different organizations involved in the network, regarding the research issue at hand. These perceptions are considered embedded in a network that is characterized, in line with Gadde et al. [7], by its atmosphere. A key feature of network atmosphere is the level of trust influencing the willingness to integrate.

**4. Short sea shipping**

integration.

The main common transportation modes are classified as either road, sea, air, pipelines or rail. In a supply chain, which is a business context, value perceptions will be the strongest influencer when choosing among these alternatives. From a business perspective of the individual supply chain actor, priority is given to achieve company profitability. Choices are, however, limited by the reason of distance and characteristics of goods. Recent technological innovations facilitate easy shifts between different modes possible. The container is a key resource in such transport configurations. This functionality is called intermodal transport. Furthermore, especially when transporting fresh perishable foods, reefer containers secure food quality and low-cost transport intermodal changes. Traceability is assured through temperature control that also enables maintaining a standard quality of fish products over a prolonged timeline of transport duration. The quality of traceability is dependent on the level of supply chain

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Intermodal transport represents combining minimum two transport modes in a particular transportation chain without any change of container; a combination of road, rail and water transport. Initial and final road transportation must be as short as possible [9]. This means that intramodality, following Boske [10], can be described as a process of transporting freight through a systemically organized network involving combinations of different modes of transport in which all the component parts are seamlessly linked and efficiently coordinated using standardized transport resources, the container being the core facility. Intermodal transport concerns investment infrastructure cost, maintenance cost for terminals, purchasing cost for vehicles and equipment and cost for transfer and storage. These factors constitute

The overall economic benefits of intermodal transportation are proposed by Yevdokimov [11] as divided into four elements: (1) an increase in the volume of transportation in an existing transportation network, (2) a reduction in logistic costs of current operations, (3) the economies of scale associated with transportation network expansion and (4) better accessibility to input and output markets. The cost structure for the transportation at each phase, however, is unclear and thereby hard to break down to create an accurate perception of the total that intermodal transport at an aggregate network level is cost-effective over long distances and in large volume. This is due to the inter-organizational character of this form of transport;

In the studied case, the supply chain undergoing potential freight reallocation, the combination of sea and road transport is advocated by the network actors with the intention to achieve efficient transportation performance. One of the reasons, as described in the introduction, is to utilize a multimodal concept with SSS as the main transport mode, to reduce road accidents, and to reduce traffic congestion in urban areas. Road driving in residence site has arose noise pollution and unsafe conditions for people in the local area. In addition to that, less greenhouse gas emission is desired in the long term from the perspective of green logistics.

the transport process associated with intermodal transport.

companies reluctantly only share their cost information.

**Figure 3.** Levels of analysis applied in this study.

In this case, we focus on integrating a project organization associated with food freight reallocation. Describing a network as a set of interacting business relationships also entails that various relationships are interdependent. An action in one business relationship has impact on a larger network organizational structure consisting of more or less integrated firms. In this chapter, we propose a form of domino effect on other relationships, and this includes how value is perceived as emergent due to interaction in different relationships affecting the network atmosphere. Finally, it is vital to stress that, even though customer value is ultimately measured by the customer, other network actors may also perceive this factor. This is captured in the industrial marketing literature as the concept of "value proposition" [8]; value may be proposed by the supplier, and this creates foundation for dialogue to create customer value through interaction.

The value proposition implies therefore a boundary spanning effort by the supplier, aiming to reach out to interact with the customer and thereby learn first-hand what the customer needs are and is willing to pay, for a market offering. This market offering is accordingly viewed as reciprocally interdependent in the business relationship between the customer and supplier. This is clearly a process, a mutual adjustment. The customer or supplier may have carrying degrees of power, but seldom does one dictate over the other a conception of "value". This process of adjustment, learning what is valued for one's own firm and the other firm, is again embedded in a network structure.

This structure can also be conceived as having properties concerned with the meaning of "value", as discourse or alternatively termed as "network culture". Networks may, following Cooren [2], be associated with a common binding discourse. At this aggregate level, customer value is never a precisely measurable artefact. People are self-reflective, and what we like and what we prefer are in continuous change, both cognitively fluid and contingently dependent. In our case, this discourse can be described as a business culture, rules, canons and norms that define the network as a collective of firms. The network may be considered as a societal level of investigation to the degree that organizations partaking in the network are not merely business organizations. The network may also be considered as an ecosystem This implies taking into account in addition to economic concerns, also nature and societal concerns. In this study, such environmental concerns are considered contextual, not part of the network itself. The studied network does, however, consist of a mix of business organizations and public entities. Value is a complex phenomenon in a business network setting. We now turn to considering the shipping solution value is associated with.

### **4. Short sea shipping**

In this case, we focus on integrating a project organization associated with food freight reallocation. Describing a network as a set of interacting business relationships also entails that various relationships are interdependent. An action in one business relationship has impact on a larger network organizational structure consisting of more or less integrated firms. In this chapter, we propose a form of domino effect on other relationships, and this includes how value is perceived as emergent due to interaction in different relationships affecting the network atmosphere. Finally, it is vital to stress that, even though customer value is ultimately measured by the customer, other network actors may also perceive this factor. This is captured in the industrial marketing literature as the concept of "value proposition" [8]; value may be proposed by the supplier, and this creates foundation for dialogue to create customer

The value proposition implies therefore a boundary spanning effort by the supplier, aiming to reach out to interact with the customer and thereby learn first-hand what the customer needs are and is willing to pay, for a market offering. This market offering is accordingly viewed as reciprocally interdependent in the business relationship between the customer and supplier. This is clearly a process, a mutual adjustment. The customer or supplier may have carrying degrees of power, but seldom does one dictate over the other a conception of "value". This process of adjustment, learning what is valued for one's own firm and the other firm, is again

This structure can also be conceived as having properties concerned with the meaning of "value", as discourse or alternatively termed as "network culture". Networks may, following Cooren [2], be associated with a common binding discourse. At this aggregate level, customer value is never a precisely measurable artefact. People are self-reflective, and what we like and what we prefer are in continuous change, both cognitively fluid and contingently dependent. In our case, this discourse can be described as a business culture, rules, canons and norms that define the network as a collective of firms. The network may be considered as a societal level of investigation to the degree that organizations partaking in the network are not merely business organizations. The network may also be considered as an ecosystem This implies taking into account in addition to economic concerns, also nature and societal concerns. In this study, such environmental concerns are considered contextual, not part of the network itself. The studied network does, however, consist of a mix of business organizations and public entities. Value is a complex phenomenon in a business network setting. We now turn to considering the shipping solution value is

value through interaction.

**Figure 3.** Levels of analysis applied in this study.

64 Agricultural Value Chain

embedded in a network structure.

associated with.

The main common transportation modes are classified as either road, sea, air, pipelines or rail. In a supply chain, which is a business context, value perceptions will be the strongest influencer when choosing among these alternatives. From a business perspective of the individual supply chain actor, priority is given to achieve company profitability. Choices are, however, limited by the reason of distance and characteristics of goods. Recent technological innovations facilitate easy shifts between different modes possible. The container is a key resource in such transport configurations. This functionality is called intermodal transport. Furthermore, especially when transporting fresh perishable foods, reefer containers secure food quality and low-cost transport intermodal changes. Traceability is assured through temperature control that also enables maintaining a standard quality of fish products over a prolonged timeline of transport duration. The quality of traceability is dependent on the level of supply chain integration.

Intermodal transport represents combining minimum two transport modes in a particular transportation chain without any change of container; a combination of road, rail and water transport. Initial and final road transportation must be as short as possible [9]. This means that intramodality, following Boske [10], can be described as a process of transporting freight through a systemically organized network involving combinations of different modes of transport in which all the component parts are seamlessly linked and efficiently coordinated using standardized transport resources, the container being the core facility. Intermodal transport concerns investment infrastructure cost, maintenance cost for terminals, purchasing cost for vehicles and equipment and cost for transfer and storage. These factors constitute the transport process associated with intermodal transport.

The overall economic benefits of intermodal transportation are proposed by Yevdokimov [11] as divided into four elements: (1) an increase in the volume of transportation in an existing transportation network, (2) a reduction in logistic costs of current operations, (3) the economies of scale associated with transportation network expansion and (4) better accessibility to input and output markets. The cost structure for the transportation at each phase, however, is unclear and thereby hard to break down to create an accurate perception of the total that intermodal transport at an aggregate network level is cost-effective over long distances and in large volume. This is due to the inter-organizational character of this form of transport; companies reluctantly only share their cost information.

In the studied case, the supply chain undergoing potential freight reallocation, the combination of sea and road transport is advocated by the network actors with the intention to achieve efficient transportation performance. One of the reasons, as described in the introduction, is to utilize a multimodal concept with SSS as the main transport mode, to reduce road accidents, and to reduce traffic congestion in urban areas. Road driving in residence site has arose noise pollution and unsafe conditions for people in the local area. In addition to that, less greenhouse gas emission is desired in the long term from the perspective of green logistics. According to Rodrigue et al. [12], the term "green logistics" refers to logistics designed not to only be environmentally friendly but also economically functional. This implies a statement of network value, a part of the discourse this SSS development project is embedded in. There is no evidence that taking environmental considerations into logistics system would have negative influence on logistics performance [13].

is convenient over short to medium distances since it provides door-to-door transport and sea transport is inexpensive but slow and can carry heavy bulky goods. In addition, in terms of environmental concerns, sea transport can carry large volumes in a single vessel and are therefore considered more environmentally friendly. Also road wear and accidents make SSS

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To secure logistically efficient transport, SSS involves the use of technically adapted ship designs. The main technologies of the SSS are Float-on-Float-off (FLO-FLO), Lift-on-Lift-off (LO-LO) and Roll-on-Roll-off (RO-RO). The FLO-FLO ships are also known in which the floating cargo is floated into the ship's cargo space by submerging the ships' loading area. A typical disadvantage of this arrangement is that the ship must be lowered out at sea, which allows the floating vessels to be stowed into a stowage level vertically fixed within the ship. In addition, this submerging operation of the ship must be adjusted to fix deck or girder structures, which segregate the cargo containers at various cargo levels. Such intermodal transport is

The LO-LO vessels, illustrated in **Figure 4**, are container vessels transporting a wide range of products that must be loaded and discharged in the port by crane and derricks. The cargo is lifted on the vessel according to a particular plan that is required by technical characteristics of the vessel, "not equipped with ballast-adjusting mechanisms. The LO-LO solution will be relevant for other types of cargo and included in use at Hitra. These are vessels commonly

The RO-RO technology is used for the fresh fish transportation in the studied case. Roll-on-Roll-off is the technology, which is applied in the design of ships and allows to carry wheeled cargo. This is the only one solution for sea transportation of heavy-wheeled freight such as trucks and other bulky construction and road machinery. According to Medda and Trujillo [17], the RO-RO vessels need considerable investment that implies the requirements for a satisfactory level of the commercial operations. The RO-RO vessels have built-in or shorebased ramps that allow the cargo to be efficiently driven on and off the ship during loading/

a preferable mode of transport compared to road transport of the goods.

used mainly in developing countries with limited harbour facilities.

considered as "container ships".

**Figure 4.** A FLO-FLO ship operation.

Taking a supply chain perspective, managing this chain involves integration of this multimodal transportation system through a chain of interdependent suppliers. The customer, in this picture, is each intermediary, with the end user far off in the distant markets waiting to purchase and later eat their quality seafood from, in this case, Norway. Customer value, perceived by an end user in the food chain, is accordingly fragmented. It is perceived as a sequentially interdependent, a cumulative quality where each leg of transport impacts on the following. In such long-linked sequentially interdependent inter-organizational entities stretching from raw-material source to consumption, typical for manufacturing and for modernistic food production, sequential interdependencies are prominent. A following activity is dependent on the completion of a previous one; when such activities are networked between different firms, this creates interdependencies, a form of network power.

Thompson [14] describes variation in power-based interdependencies as being either reciprocal, pooled or sequential. In cases of dominant sequential interdependencies, resource pooling and intense interaction (reciprocity) support a long-linked form of production. In services, it is either core pooled or reciprocal interdependencies that are supported by sequential timing. This means that logistical coordination is a prime effort in food chains. Modernistic (industrialized) food chains are a particular form of supply, similar to manufacturing. Activities are such supply chains need, fundamentally, to be coordinated as series of events in a process. To synchronize the activities carried out in supply chain processes, a series of transport services need to be sufficiently integrated and coordinated. The aim of integration concentrates on lead time minimization and improvement on resource utilization [15]. Following Macharis and Bontekoning [9], intermodal transportation assumes optimization of its individual modes not only separate organizational transport components but also as a part of transport network as a whole system. Since this concerns inter-organizational integration, this also is a supply chain management issue.

The case of infrastructure development at Hitra to accommodate sea freight involves a particular form of sea transport sending goods from Hitra for a shorter distance, for reloading to mainly road transport, but potentially also long-distance sea transport in cases of frozen seafood transport. SSS usually defined as the shipping of cargo flows for quite short distances along a coastline. The EU Commission considered SSS as "the only freight mode that can offer a realistic prospect of substantial modal shift from road, as well as improve competitiveness and reduce environmental damage" [16]. In the current supply chain, considered as a whole system, SSS is a supplement to road transportation. Transport intermodality is accordingly a facilitator of efficient SSS. The viability of SSS also depends on type of transported freight. This consideration is generically considered when choosing the right transport mode. Air transport is fast but costly and is best suited for lightweight and smaller goods, road transport is convenient over short to medium distances since it provides door-to-door transport and sea transport is inexpensive but slow and can carry heavy bulky goods. In addition, in terms of environmental concerns, sea transport can carry large volumes in a single vessel and are therefore considered more environmentally friendly. Also road wear and accidents make SSS a preferable mode of transport compared to road transport of the goods.

To secure logistically efficient transport, SSS involves the use of technically adapted ship designs. The main technologies of the SSS are Float-on-Float-off (FLO-FLO), Lift-on-Lift-off (LO-LO) and Roll-on-Roll-off (RO-RO). The FLO-FLO ships are also known in which the floating cargo is floated into the ship's cargo space by submerging the ships' loading area. A typical disadvantage of this arrangement is that the ship must be lowered out at sea, which allows the floating vessels to be stowed into a stowage level vertically fixed within the ship. In addition, this submerging operation of the ship must be adjusted to fix deck or girder structures, which segregate the cargo containers at various cargo levels. Such intermodal transport is used mainly in developing countries with limited harbour facilities.

The LO-LO vessels, illustrated in **Figure 4**, are container vessels transporting a wide range of products that must be loaded and discharged in the port by crane and derricks. The cargo is lifted on the vessel according to a particular plan that is required by technical characteristics of the vessel, "not equipped with ballast-adjusting mechanisms. The LO-LO solution will be relevant for other types of cargo and included in use at Hitra. These are vessels commonly considered as "container ships".

The RO-RO technology is used for the fresh fish transportation in the studied case. Roll-on-Roll-off is the technology, which is applied in the design of ships and allows to carry wheeled cargo. This is the only one solution for sea transportation of heavy-wheeled freight such as trucks and other bulky construction and road machinery. According to Medda and Trujillo [17], the RO-RO vessels need considerable investment that implies the requirements for a satisfactory level of the commercial operations. The RO-RO vessels have built-in or shorebased ramps that allow the cargo to be efficiently driven on and off the ship during loading/

**Figure 4.** A FLO-FLO ship operation.

According to Rodrigue et al. [12], the term "green logistics" refers to logistics designed not to only be environmentally friendly but also economically functional. This implies a statement of network value, a part of the discourse this SSS development project is embedded in. There is no evidence that taking environmental considerations into logistics system would have

Taking a supply chain perspective, managing this chain involves integration of this multimodal transportation system through a chain of interdependent suppliers. The customer, in this picture, is each intermediary, with the end user far off in the distant markets waiting to purchase and later eat their quality seafood from, in this case, Norway. Customer value, perceived by an end user in the food chain, is accordingly fragmented. It is perceived as a sequentially interdependent, a cumulative quality where each leg of transport impacts on the following. In such long-linked sequentially interdependent inter-organizational entities stretching from raw-material source to consumption, typical for manufacturing and for modernistic food production, sequential interdependencies are prominent. A following activity is dependent on the completion of a previous one; when such activities are networked between different firms, this creates interdependencies, a form of network

Thompson [14] describes variation in power-based interdependencies as being either reciprocal, pooled or sequential. In cases of dominant sequential interdependencies, resource pooling and intense interaction (reciprocity) support a long-linked form of production. In services, it is either core pooled or reciprocal interdependencies that are supported by sequential timing. This means that logistical coordination is a prime effort in food chains. Modernistic (industrialized) food chains are a particular form of supply, similar to manufacturing. Activities are such supply chains need, fundamentally, to be coordinated as series of events in a process. To synchronize the activities carried out in supply chain processes, a series of transport services need to be sufficiently integrated and coordinated. The aim of integration concentrates on lead time minimization and improvement on resource utilization [15]. Following Macharis and Bontekoning [9], intermodal transportation assumes optimization of its individual modes not only separate organizational transport components but also as a part of transport network as a whole system. Since this concerns inter-organizational integration, this also is a supply

The case of infrastructure development at Hitra to accommodate sea freight involves a particular form of sea transport sending goods from Hitra for a shorter distance, for reloading to mainly road transport, but potentially also long-distance sea transport in cases of frozen seafood transport. SSS usually defined as the shipping of cargo flows for quite short distances along a coastline. The EU Commission considered SSS as "the only freight mode that can offer a realistic prospect of substantial modal shift from road, as well as improve competitiveness and reduce environmental damage" [16]. In the current supply chain, considered as a whole system, SSS is a supplement to road transportation. Transport intermodality is accordingly a facilitator of efficient SSS. The viability of SSS also depends on type of transported freight. This consideration is generically considered when choosing the right transport mode. Air transport is fast but costly and is best suited for lightweight and smaller goods, road transport

negative influence on logistics performance [13].

power.

66 Agricultural Value Chain

chain management issue.

discharging in the port. They can be described as freight ferries. Much as a car ferry, the ship load (in our case trucks) is driven on/off the deck on its own wheels. Advanced engineering technologies allow the ship owners to compete in the SSS market through the functionality optimization of RO-RO ships and flexibility in cargo access equipment. The use of stern ramps suitable for the different types of quays and port facilities, custom-made shore ramps, provides highly efficient and quick loading and unloading [18].

is based on the concept of collaboration between supplier, recipient, shipping company, road logistics provider and harbours. The trailer will function both as a cargo carrier and a distri-

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A vital factor in all transport logistics is the speed. This impacts on the time of delivery and accordingly on customer value. A negative correlation exists between vessel speed and vessel capacity. Therefore, according to Woo and Moon [13], maintaining certain vessel size is also a basis of speed control. From the terms of decision-making, managers count economic saving from slow speed and extra income which is raised by speed-up service. This shows how value incorporates in transport both cost and benefit perceptions, and this needs to be balanced. This balancing can be associated with mathematical optimization principles. However, when considering the environmental performance, slow speed is the preferable choice in maritime shipping if it is still possible to be able to meet given time limits. This entails that when widening the level of analysis to the network level, encompassing both the environmentally concerned society and the nature itself as substance matter, further perceptions on what constitutes value emerge. In the model of speed optimization on the fixed shipping routes, the main business objective is to reduce fuel consumption. This is possible to achieve by adjusting the sailing speed. Given capacity constraints of ships and harbours, as well as uncertain weather conditions, it is however difficult to optimize ship routing. Shipping is in practical circumstances, therefore a complex process where optimized routing represents plans func-

In this section, SSS is discussed in the context of the natural environment. First a few words are provided on what constitutes environmental concerns pertinent in relation to transport mode selection. Focus is here on the factor of global warming, seen as a human-inflicted phenomenon. The processes of goods production, transportation, inventory storage and end customers' consumption are causing greenhouse gas (GHG) emissions. GHGs in the atmosphere are major foundation of the greenhouse effect. Mora et al. [20] pointed out that if the greenhouse gas emissions are not reduced, humanity can face a serious problem as the excess of the historical planet's temperature already in 2047 with its impact on ecosystems, biodiversity

After oil and gas extraction, manufacturing and mining activities, the transportation of goods is among the most polluting industrial activities to the environment and ecosystem. Road

burning of petroleum-based products in cars engines. The amount of other greenhouse gases

refrigerated transport use. However, construction and renovation of port area emerge large amount of pollutants into air and water, which threaten the lives of local people and natural

O) and hydrofluorocarbon (HFC) emitted during mobile air conditioners and

emitted during fuel combustion is quite small. There are gases as methane (CH<sup>4</sup>

) emissions that comes from the

), nitrous

bution unit.

tioning as an indicator.

oxide (N2

surroundings [22].

**5. The environmental context**

and the livelihoods of people worldwide [21].

freight transport is a major source of carbon dioxide (CO2

RO-RO technology illustrated in **Figure 5** is primarily associated with higher speed of loading and unloading of goods compared to traditional container vessels [19]. The capacity of such vessels is unlimited compared to other modes of transport, illustrated by specialized car transport vessels used for long-distance transport. While car transport vessels are adapted to this particular type of freight, the SSS RO-RO ships are constructed as smaller vessels under 10,000 DWT adapted to reap benefits of quick loading and unloading, particularly important when ships call at numerous ports loading smaller consignments of freight.

Appling RO-RO technology implies a truck is loaded at Hitra or Frøya, driven to the port at Hitra and loaded on the ship. The truck is a semi-trailer, where the trailer section containing a reefer container remains on the vessel, while the truck returns for further engagements. Likewise, at the port of destination, a new truck picks up the trailer for further transport. The trailer has an upper side rail that is a part that is a beam that runs the length of the upper frame of the trailer. The rear reflector is a light-reflecting device that marks the back end of the reefer. The lower side rail is a beam that runs the length of the lower frame. Support legs hold the semi-trailer in a horizontal position. A piece of metal that protects the end of the support leg of the reefer is called the sand shoe. A front reflector marks the front end of the reefer using a light-reflecting device.

Much of the long-distance refrigerated transport by truck is done using such trucks pulling refrigerated semi-trailers (reefers) only onto the vessel, the decoupling form the trailer. The number of trailers involved into the transportation process is estimated to be 100 semi-trailers due to skip capacity. Return cargo is a crucial and still unsolved economic factor. The project

**Figure 5.** Loading a RO-RO ship.

is based on the concept of collaboration between supplier, recipient, shipping company, road logistics provider and harbours. The trailer will function both as a cargo carrier and a distribution unit.

A vital factor in all transport logistics is the speed. This impacts on the time of delivery and accordingly on customer value. A negative correlation exists between vessel speed and vessel capacity. Therefore, according to Woo and Moon [13], maintaining certain vessel size is also a basis of speed control. From the terms of decision-making, managers count economic saving from slow speed and extra income which is raised by speed-up service. This shows how value incorporates in transport both cost and benefit perceptions, and this needs to be balanced. This balancing can be associated with mathematical optimization principles. However, when considering the environmental performance, slow speed is the preferable choice in maritime shipping if it is still possible to be able to meet given time limits. This entails that when widening the level of analysis to the network level, encompassing both the environmentally concerned society and the nature itself as substance matter, further perceptions on what constitutes value emerge. In the model of speed optimization on the fixed shipping routes, the main business objective is to reduce fuel consumption. This is possible to achieve by adjusting the sailing speed. Given capacity constraints of ships and harbours, as well as uncertain weather conditions, it is however difficult to optimize ship routing. Shipping is in practical circumstances, therefore a complex process where optimized routing represents plans functioning as an indicator.

### **5. The environmental context**

discharging in the port. They can be described as freight ferries. Much as a car ferry, the ship load (in our case trucks) is driven on/off the deck on its own wheels. Advanced engineering technologies allow the ship owners to compete in the SSS market through the functionality optimization of RO-RO ships and flexibility in cargo access equipment. The use of stern ramps suitable for the different types of quays and port facilities, custom-made shore ramps,

RO-RO technology illustrated in **Figure 5** is primarily associated with higher speed of loading and unloading of goods compared to traditional container vessels [19]. The capacity of such vessels is unlimited compared to other modes of transport, illustrated by specialized car transport vessels used for long-distance transport. While car transport vessels are adapted to this particular type of freight, the SSS RO-RO ships are constructed as smaller vessels under 10,000 DWT adapted to reap benefits of quick loading and unloading, particularly important

Appling RO-RO technology implies a truck is loaded at Hitra or Frøya, driven to the port at Hitra and loaded on the ship. The truck is a semi-trailer, where the trailer section containing a reefer container remains on the vessel, while the truck returns for further engagements. Likewise, at the port of destination, a new truck picks up the trailer for further transport. The trailer has an upper side rail that is a part that is a beam that runs the length of the upper frame of the trailer. The rear reflector is a light-reflecting device that marks the back end of the reefer. The lower side rail is a beam that runs the length of the lower frame. Support legs hold the semi-trailer in a horizontal position. A piece of metal that protects the end of the support leg of the reefer is called the sand shoe. A front reflector marks the front end of the reefer

Much of the long-distance refrigerated transport by truck is done using such trucks pulling refrigerated semi-trailers (reefers) only onto the vessel, the decoupling form the trailer. The number of trailers involved into the transportation process is estimated to be 100 semi-trailers due to skip capacity. Return cargo is a crucial and still unsolved economic factor. The project

provides highly efficient and quick loading and unloading [18].

using a light-reflecting device.

68 Agricultural Value Chain

**Figure 5.** Loading a RO-RO ship.

when ships call at numerous ports loading smaller consignments of freight.

In this section, SSS is discussed in the context of the natural environment. First a few words are provided on what constitutes environmental concerns pertinent in relation to transport mode selection. Focus is here on the factor of global warming, seen as a human-inflicted phenomenon. The processes of goods production, transportation, inventory storage and end customers' consumption are causing greenhouse gas (GHG) emissions. GHGs in the atmosphere are major foundation of the greenhouse effect. Mora et al. [20] pointed out that if the greenhouse gas emissions are not reduced, humanity can face a serious problem as the excess of the historical planet's temperature already in 2047 with its impact on ecosystems, biodiversity and the livelihoods of people worldwide [21].

After oil and gas extraction, manufacturing and mining activities, the transportation of goods is among the most polluting industrial activities to the environment and ecosystem. Road freight transport is a major source of carbon dioxide (CO2 ) emissions that comes from the burning of petroleum-based products in cars engines. The amount of other greenhouse gases emitted during fuel combustion is quite small. There are gases as methane (CH<sup>4</sup> ), nitrous oxide (N2 O) and hydrofluorocarbon (HFC) emitted during mobile air conditioners and refrigerated transport use. However, construction and renovation of port area emerge large amount of pollutants into air and water, which threaten the lives of local people and natural surroundings [22].

Reduction of emissions is an important objective of any national environmental policy. According to the international Kyoto agreement, Norway is aimed to reduce greenhouse gas emissions to 84% of the registered level of emission in 1990. There is also an agreement implied by Norwegian parliament in 2008, where the emission reduction is set as a national target. The Ministry of Transport is working to achieve these goals by stimulating public transport and innovative types of transport, by investment in new technologies and encouraging a change to vehicles with lower emissions. This policy is also supported by the economic instruments: CO2 taxes and green energy subsidies. These policies are intended to promote transition to increasingly using environmentally friendly transport modes.

and accomplished by the use of innovative technologies. A sustainable transport system considers environmental aspects and aimed to reduce emissions and waste, minimize consumption of natural rare resources and decrease the use of land and production of noise. In addition to this, there is a strong transport link between sustainable transport and reduced accidents and congestion on roads. Sustainable transport contributes to economic development. Social progress and living quality are improved by implementing the concept of sustainable transport. Thomaeus [26] points out that a transport system can be concluded as sustainable where economic efficiency and environmental protection complement each other or in a balance with acceptable level. The adjusted system of information sharing and integration is vital for sustainability of fresh fish supply as perishable goods and greatly influences the waste reduction. The estimated food waste from manufacturer to the end customer in different supply chains is about one-third from the production volume. Some major causes of waste in fresh fish supply are weather conditions, lack of coordination of supply flows, road accidents, failures in the transportation process, shortcomings in the shelf-life management

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Taking a sustainability perspective, it is imminent to include considerations of food waste. This is because much of the seafood transported from Norway is in a fresh state making them perishable goods. Poor transport quality increases the risk of food waste during transport impacting on ethical considerations regarding efficient food use in relation to human welfare aimed at a global level. Food waste reduction involves fundamentally improved coordination of food production volume with customer demand and improvements on the efficiency and performance of the supply chain as a whole system. In the case of fresh seafood supply, it is necessary to consider the specificities of transportation and features of the product, affecting management and performance of the whole chain [27]. The logistics providers in fresh fish supply chain targeted to deliver the product to the end customer in perfect condition and maximize available shelf-life time. Seafood that is poorly delivered indicating transport discrepancies may be improved by changing the design and use of the products. Three main characteristics of the food market, affecting the structure of the supply chain, were identified

1. Demand uncertainty. Customer demand is influenced by natural factors as weather condi-

3. Supply chain lead time allowance meaning perishable goods are characterized by limited life cycle and efficiency in the supply chain; allocating the sharing of the expected time to transport and handle goods between the logistical elements of supply chain is of crucial

The perishability of the goods does not permit creating an inventory buffer against demand changeability and failures in the transportation. According to Ahumada and Villalobos [30], this can be compensated by flexibility in the supply and increased speed. Collaboration between participants at an operational level of the chain and as minimum partly integrated support system together with the use of advanced forecasting techniques allows to achieve

tions and seasonality and encouraged by promotion actions [29].

2. Customer order lead time. Usually, lead time required by customers is short.

and inconsistency between demand and supply.

by Kittipanya-ngam et al. [28]:

importance.

Road transport involves consuming unclean fossil fuels, which emits CO2 , NOx , sulphur compounds and other toxic substances. These substances seriously damage air quality, also at a local level. It is a serious health concern, especially for people with breathing disorders. Rommert et al. [23] analyse choice of transportation (transportation mode, intermodal transport, equipment choice and fuel choice) against their environmental impact. This study reveals that larger scale of cargo to transport will lower CO2 emissions per g/t/km. Among all transportation modes (container vessel, rail, truck and plane), transport by vessel is the most CO2 efficient and offering highest fuel economy. It is a price-wise and economical transport mode. Therefore, the SSS is attractive from an environmental perspective in likewise as being economically feasible [16]. This form of transport usually does not allow door-to-door delivery and is slow.

Governments are not sitting idle while ships pollute the air. Sea transportation is thus subject to a particular tax system. The Sulphur Emission Control Areas (SECA) for shipping companies was entered into force in September under new EU legislation. There have been introduced certain taxes and requirement to use fuel where the sulphur content should not exceed 0.1% when operating within the SECA. The SECA includes North Sea, which Norwegian shipping companies are crossing during their import/export operations. Therefore, it will have impact on operation cost and will increase charges to the customers [24]. Ships emit NO2 , but this transport-related value can be improved based on the available or a new technology:


In our case, all transportation related to export of fresh fish to the EU countries represent about 130 mill.ton.km/year with emissions equal 76 g CO2 -ekv./ton.km [25]. Sustainable transportation is a transportation that satisfies individuals and society's needs in a long-term perspective. This implies production sensitive to human and environmental health concerns, in equal conditions for current and future generations. Sustainable transport is economically efficient and energy effective, competitive, operating offering alternative transport solutions and accomplished by the use of innovative technologies. A sustainable transport system considers environmental aspects and aimed to reduce emissions and waste, minimize consumption of natural rare resources and decrease the use of land and production of noise. In addition to this, there is a strong transport link between sustainable transport and reduced accidents and congestion on roads. Sustainable transport contributes to economic development. Social progress and living quality are improved by implementing the concept of sustainable transport. Thomaeus [26] points out that a transport system can be concluded as sustainable where economic efficiency and environmental protection complement each other or in a balance with acceptable level. The adjusted system of information sharing and integration is vital for sustainability of fresh fish supply as perishable goods and greatly influences the waste reduction. The estimated food waste from manufacturer to the end customer in different supply chains is about one-third from the production volume. Some major causes of waste in fresh fish supply are weather conditions, lack of coordination of supply flows, road accidents, failures in the transportation process, shortcomings in the shelf-life management and inconsistency between demand and supply.

Reduction of emissions is an important objective of any national environmental policy. According to the international Kyoto agreement, Norway is aimed to reduce greenhouse gas emissions to 84% of the registered level of emission in 1990. There is also an agreement implied by Norwegian parliament in 2008, where the emission reduction is set as a national target. The Ministry of Transport is working to achieve these goals by stimulating public transport and innovative types of transport, by investment in new technologies and encouraging a change to vehicles with lower emissions. This policy is also supported by the economic instruments:

taxes and green energy subsidies. These policies are intended to promote transition to

pounds and other toxic substances. These substances seriously damage air quality, also at a local level. It is a serious health concern, especially for people with breathing disorders. Rommert et al. [23] analyse choice of transportation (transportation mode, intermodal transport, equipment choice and fuel choice) against their environmental impact. This study

transportation modes (container vessel, rail, truck and plane), transport by vessel is the most

Governments are not sitting idle while ships pollute the air. Sea transportation is thus subject to a particular tax system. The Sulphur Emission Control Areas (SECA) for shipping companies was entered into force in September under new EU legislation. There have been introduced certain taxes and requirement to use fuel where the sulphur content should not exceed 0.1% when operating within the SECA. The SECA includes North Sea, which Norwegian shipping companies are crossing during their import/export operations. Therefore, it will have impact on operation cost and will increase charges to the customers [24]. Ships emit NO2

but this transport-related value can be improved based on the available or a new technology:

In our case, all transportation related to export of fresh fish to the EU countries represent

transportation is a transportation that satisfies individuals and society's needs in a long-term perspective. This implies production sensitive to human and environmental health concerns, in equal conditions for current and future generations. Sustainable transport is economically efficient and energy effective, competitive, operating offering alternative transport solutions




about 130 mill.ton.km/year with emissions equal 76 g CO2

 efficient and offering highest fuel economy. It is a price-wise and economical transport mode. Therefore, the SSS is attractive from an environmental perspective in likewise as being economically feasible [16]. This form of transport usually does not allow door-to-door deliv-

, NOx

emissions per g/t/km. Among all


, sulphur com-

,

increasingly using environmentally friendly transport modes.

reveals that larger scale of cargo to transport will lower CO2

Road transport involves consuming unclean fossil fuels, which emits CO2

CO2

70 Agricultural Value Chain

CO2

ery and is slow.



Taking a sustainability perspective, it is imminent to include considerations of food waste. This is because much of the seafood transported from Norway is in a fresh state making them perishable goods. Poor transport quality increases the risk of food waste during transport impacting on ethical considerations regarding efficient food use in relation to human welfare aimed at a global level. Food waste reduction involves fundamentally improved coordination of food production volume with customer demand and improvements on the efficiency and performance of the supply chain as a whole system. In the case of fresh seafood supply, it is necessary to consider the specificities of transportation and features of the product, affecting management and performance of the whole chain [27]. The logistics providers in fresh fish supply chain targeted to deliver the product to the end customer in perfect condition and maximize available shelf-life time. Seafood that is poorly delivered indicating transport discrepancies may be improved by changing the design and use of the products. Three main characteristics of the food market, affecting the structure of the supply chain, were identified by Kittipanya-ngam et al. [28]:

1. Demand uncertainty. Customer demand is influenced by natural factors as weather conditions and seasonality and encouraged by promotion actions [29].

2. Customer order lead time. Usually, lead time required by customers is short.

3. Supply chain lead time allowance meaning perishable goods are characterized by limited life cycle and efficiency in the supply chain; allocating the sharing of the expected time to transport and handle goods between the logistical elements of supply chain is of crucial importance.

The perishability of the goods does not permit creating an inventory buffer against demand changeability and failures in the transportation. According to Ahumada and Villalobos [30], this can be compensated by flexibility in the supply and increased speed. Collaboration between participants at an operational level of the chain and as minimum partly integrated support system together with the use of advanced forecasting techniques allows to achieve required level of speed and flexibility [30]. This may improve logistical coordination in the supply chain. The unit of analysis in our case study is fresh fish supply chain that consists of the following main elements: producer, port of loading, logistics provider, port of discharge and end customer. We now turn to consider the economic considerations of this conglomerate organizational entity, the studied network and its organizations.

carbon footprint and pollutions upon the whole supply chain and gain economic benefits from their somewhat detached and local network perspective. This represents the operation perspective, a continuous network effort. It is expected that the production of aquaculture will grow to 800,000 tons by 2020. Production will be five times larger than the current production volume in 2050. According to long- and short-term forecasting, a considerable increase in the production of seafood and other goods is estimated and will require new transportation

nance coast. New automotive technologies, improved fuel, development and improvement of the road system promote a sustainable growth of road transport share in transportation. All export flows of fresh salmon are transported by road between South Norway and the EU markets. Salmon road Fv. (regional highway shown in **Figure 6**) 714 is connecting the coastal municipalities Snillfjord, Hitra and Frøya, Orkanger and Trondheim. The 57.6-kmlong stretch between Haugen in Orkdal municipality and Sunde in Snillfjord Municipality has low standard. The daily goods flow on trucks loaded with salmon lies between 50 and 80 semi-trailers per day. This corresponds to 17,000 semi-trailers from Hitra/Frøya yearly. Sixty percent of them are oriented to the EU markets. Traffic figures from Nord-Trøndelag are more than 3000 per year. Considering together these volumes, there is a possibility to reduce the number of semi-trailers between Mid-Norway and Europe for 12,000–13,000 vehicles not considering the return cargo flows. The use of foreign transport logistics companies has proven to increase competition and the number of accidents on Norwegian roads considerably. During winter period, transportation becomes especially challenging. Such conditions are an important reason for development of the terminals and harbours of intermodal transportation in

The official opening of Hitra Port took place on 16 October 2014. Regular container ship calls started in November 2014. After 5 years, the main elements of the infrastructure are on the place. The infrastructure of the port includes production and social components as engineer

emissions caused by trucks, road accidents and road mainte-

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solutions that will reduce CO2

this supply chain.

**Figure 6.** The "salmon road".

### **6. Supply chain and logistics**

Customer-responsive supply chains, the "value chains", have the capacity to combine scale with product differentiation, and cooperation with competition, to achieve collaborative advantages in the marketplace. It makes commitments to the welfare of all strategic partners, including appropriate profit margins, fair wages and long-term business agreements, balancing cost with benefit perceptions. It emphasizes high levels of performance and interorganizational trust. A supply chain thus consists of a system for sharing information among strategic partners, including shared values and vision, shared information and shared decision-making [31]. A value perspective of the supply chain as unit of analysis for transport mode alteration, accordingly, places focus on value perceptions of the supply chain collective studied in this case regarding reallocation of freight to the potential of SSS.

Economic matters in such a supply chain structure can be measured by service level, and this metric is affected by the factors like time to market, product quality, customization and flexibility [3, 7, 15]. Efficiency is then measured by calculating the economic saving of transportation cost and positive contribution on environmental protection. Despite advantages of supply chain integration, decision-makers always balance saving on supplier integration and relative cost raised by it, the transaction cost factor. Perols et al. [32] describe two types of supplier integration having paradoxical impacts on time to market. Time to market can be accelerated by supplier process integration while product integration slower time to market. And it also reveals that a positive technology spillover effect occurs with successful assimilation within a strategically organized supply chain.

The main participants of the freight reallocation project are:


Their role in the seafood export chain varies. Some of these networked actors are directly involved in goods handling and/or ownership; others, such as the Hitra municipality, are only indirectly linked within this chain. When the projected SSS is in operation, these supply chain actors need to cooperate together to detect and reduce environmental impact, the carbon footprint and pollutions upon the whole supply chain and gain economic benefits from their somewhat detached and local network perspective. This represents the operation perspective, a continuous network effort. It is expected that the production of aquaculture will grow to 800,000 tons by 2020. Production will be five times larger than the current production volume in 2050. According to long- and short-term forecasting, a considerable increase in the production of seafood and other goods is estimated and will require new transportation solutions that will reduce CO2 emissions caused by trucks, road accidents and road maintenance coast. New automotive technologies, improved fuel, development and improvement of the road system promote a sustainable growth of road transport share in transportation. All export flows of fresh salmon are transported by road between South Norway and the EU markets. Salmon road Fv. (regional highway shown in **Figure 6**) 714 is connecting the coastal municipalities Snillfjord, Hitra and Frøya, Orkanger and Trondheim. The 57.6-kmlong stretch between Haugen in Orkdal municipality and Sunde in Snillfjord Municipality has low standard. The daily goods flow on trucks loaded with salmon lies between 50 and 80 semi-trailers per day. This corresponds to 17,000 semi-trailers from Hitra/Frøya yearly. Sixty percent of them are oriented to the EU markets. Traffic figures from Nord-Trøndelag are more than 3000 per year. Considering together these volumes, there is a possibility to reduce the number of semi-trailers between Mid-Norway and Europe for 12,000–13,000 vehicles not considering the return cargo flows. The use of foreign transport logistics companies has proven to increase competition and the number of accidents on Norwegian roads considerably. During winter period, transportation becomes especially challenging. Such conditions are an important reason for development of the terminals and harbours of intermodal transportation in this supply chain.

The official opening of Hitra Port took place on 16 October 2014. Regular container ship calls started in November 2014. After 5 years, the main elements of the infrastructure are on the place. The infrastructure of the port includes production and social components as engineer

**Figure 6.** The "salmon road".

required level of speed and flexibility [30]. This may improve logistical coordination in the supply chain. The unit of analysis in our case study is fresh fish supply chain that consists of the following main elements: producer, port of loading, logistics provider, port of discharge and end customer. We now turn to consider the economic considerations of this conglomerate

Customer-responsive supply chains, the "value chains", have the capacity to combine scale with product differentiation, and cooperation with competition, to achieve collaborative advantages in the marketplace. It makes commitments to the welfare of all strategic partners, including appropriate profit margins, fair wages and long-term business agreements, balancing cost with benefit perceptions. It emphasizes high levels of performance and interorganizational trust. A supply chain thus consists of a system for sharing information among strategic partners, including shared values and vision, shared information and shared decision-making [31]. A value perspective of the supply chain as unit of analysis for transport mode alteration, accordingly, places focus on value perceptions of the supply chain collective

Economic matters in such a supply chain structure can be measured by service level, and this metric is affected by the factors like time to market, product quality, customization and flexibility [3, 7, 15]. Efficiency is then measured by calculating the economic saving of transportation cost and positive contribution on environmental protection. Despite advantages of supply chain integration, decision-makers always balance saving on supplier integration and relative cost raised by it, the transaction cost factor. Perols et al. [32] describe two types of supplier integration having paradoxical impacts on time to market. Time to market can be accelerated by supplier process integration while product integration slower time to market. And it also reveals that a positive technology spillover effect occurs with successful assimila-

• Members of The Coastal Harbor Alliance: Kristiansund and Nordmøre Harbour IKS with

Their role in the seafood export chain varies. Some of these networked actors are directly involved in goods handling and/or ownership; others, such as the Hitra municipality, are only indirectly linked within this chain. When the projected SSS is in operation, these supply chain actors need to cooperate together to detect and reduce environmental impact, the

Hitra Coastal Port as a part and Vikna port authority Rørvik Harbour KF

organizational entity, the studied network and its organizations.

studied in this case regarding reallocation of freight to the potential of SSS.

tion within a strategically organized supply chain.

• Municipalities: Hitra and Frøya

• Shipping companies: Blue Water

The main participants of the freight reallocation project are:

• Producers/aquaculture: Marine Harvest, Lerøy and SalMar

• Road transportation companies: DB Schenker, Bring and OTTS

**6. Supply chain and logistics**

72 Agricultural Value Chain

communication, gas, electricity and water supply system with huge water reservoirs and waste water solution. Hirtshals Harbour in Northern Denmark was initially considered a starting point for the establishment of a sea transport connection. The sea transport solution will reduce current cost of road transportation by 20–25%. The price depends on volumes of return cargo flows that will be obtained over some time. Government support and financing are of high importance in implementation phase. The calculations that have been done show that an increase in return cargo flows by 10–50% can reduce prices about 10–45% depending on the distance from receiving port to the end destinations [25]. Handling equipment, communication lines, two new aquaculture plants, warehouses, facilities of the companies providing service and maintenance for aquaculture and marine industry and another buildings and facilities are included into the project and will be built after some time.

Group each will build a new factory for the production of polystyrene boxes—fish crates factories. They do this in order to increase capacity and to be even closer to the aquaculture companies that also will establish themselves in the region. This will contribute to greater security of supply for Bewi's customers in the region. Bewi considers that it is important to be established in an industrial hub that Jøstenøya will be. The overall strategy of Bewi and Brødrene Sunde is to be a supplier of packaging for both aquaculture and agriculture and building industry. This implies they are competitors in the clustered location. Their overall logic of having production facilities at the industrial park is to provide their customers even better in quality, flexibility and environment through their innovative and trend-setting products, by being near them. The juxtaposition of the packaging factors implies considerable investment leading to logistics efficiency. Keep in mind that the volume of packaging freight, since the type of packaging used may not be folded or made smaller in any way for transport, equals the volume of packaged goods freight. By building of a new factory, Lerøy plans to merge factories in Hestvika and Dolmøya to one factory in Jøstenøya. These two factories work reasonably well today. The company Lerøy has been working for several years to merge the two factories and make the production process more efficient. This implies increase production efficiency for this company as well as logistical improvement since the two factories are now to be co-located by the

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Due to demand by the companies involved in establishing themselves in the industrial park at Jostenøya, the industrial area must expand eastwards with another 60 acres. The cost of the expansion is estimated to 46 million NOK; the municipality finances it by borrowing (through a loan). It is important that companies build their facilities quickly, so that the municipality can gradually collect tax on the investment in Jøstenøya. The Hitra municipality has a strong position and extraordinary potential for industrial growth in national context. It may be possible after meetings with the Ministry of Transport where the project was presented to apply for start-up support for fresh fish exports from Mid-Norway. It is given that the full power of

These descriptions reveal how value in the supply chain clearly is differentiated between the actors, and that value is networked. In addition, through networking what constitutes a good, valued solution becomes an emergent outcome of this type of exchange process. The discussion also is interesting because it does not reveal choice of transport mode as on the agenda, even though the industrial park also is designed as a harbour. It is therefore a clear implication that this is something the Coastal Alliance needs to market to the companies establishing themselves in the industrial park. This is because it is through the business relationships between the seafood exporters and their customers that the choice of transport mode is decided upon.

One of the main findings derived from this study is that the concept of "supply chains" is contingent of various developmental projects. The design of this study reveals this since its direct focus to challenges associated with freight reallocation from road to SSS through this study intentionally does not illustrate the seafood supply chain itself in detail. The provided

a restructuring of the transport side must happen this year.

**7. Conclusion: value as a networked phenomenon**

harbour.

Hitra Port is located right in the fairway between Trondheim and Kristiansund and is therefore commonly considered a natural traffic and logistics hub for seafood and fishing industry in the Hitra/Frøya region. Hitra Coastal Port and its underlying commercial space, Hitra Industrial Park, total represent a development area of around 1.5 million m2 (1500 da). They are labelled as a "seafood logistics centre". The seafood logistics centre is directly connected to the main origins of seafood production in Mid-Norway. A well-connected transport network and extensive logistics capacity makes it possible to manage further increase in future seafood transport demand. The salmon production industry is growing steadily. Indeed, it exhibits great opportunities for cooperation with the EU markets and excellent possibilities to service Mid-Norway and Northern Norway. Many shipping companies and transportation companies are interested in using the Hitra Port as both a seafood and general cargo/unit loads hub, storage hotel, a regional distribution centre, trans-shipment terminal, hub for speed boats and ferry passengers, special storage, etc. Several companies have expressed interest in establishment in the area; some companies are in negotiating position. The world's largest salmon producer, Marine Harvest, has now secured 50 da (+ option for another 10 da) to build new salmon factory in this area. There will also be good opportunities for Hurtigruten (the daily coastal liner carrying both light freight and passengers) and cruise vessels in the port. Hitra municipality will establish a futureoriented and sustainable environment. The convenient location, along with great and new quay and harbour facilities, will provide great opportunities for economic development in the region and within the company. This indicates a multiple use potential for the harbour facility at Hitra.

Much infrastructure has already been developed at Hitra during the last 2 years. The cargo terminal Hitra Coastal Port is operational from this year and includes terminal facilities, areas and equipment appropriate for both RO-RO and LO-LO services. The port's logistics centre provides possibilities for frozen and cold storage, offers warehousing and transit storage and provides a good distribution systems via Fv714 that is connected to the port through Hitra tunnel. The upgraded Fv714 is 75 km to Orkanger and 40 to Frøya and is conducive to efficient cargo distribution.

Originally, the municipality decided to build the 120 acre industrial area of north-west side of Jøstenøya where the industrial park is located at Hitra. The first plots are already sold to Marine Harvest AS and Brødrene Sunde AS that secured themselves the land for development. Now also Bewi, Sunde Group and Lerøy are in the course of building factories at the industrial park adjacent with the two salmon factories. The Bewi company and their competitor Sunde Group each will build a new factory for the production of polystyrene boxes—fish crates factories. They do this in order to increase capacity and to be even closer to the aquaculture companies that also will establish themselves in the region. This will contribute to greater security of supply for Bewi's customers in the region. Bewi considers that it is important to be established in an industrial hub that Jøstenøya will be. The overall strategy of Bewi and Brødrene Sunde is to be a supplier of packaging for both aquaculture and agriculture and building industry. This implies they are competitors in the clustered location. Their overall logic of having production facilities at the industrial park is to provide their customers even better in quality, flexibility and environment through their innovative and trend-setting products, by being near them. The juxtaposition of the packaging factors implies considerable investment leading to logistics efficiency. Keep in mind that the volume of packaging freight, since the type of packaging used may not be folded or made smaller in any way for transport, equals the volume of packaged goods freight. By building of a new factory, Lerøy plans to merge factories in Hestvika and Dolmøya to one factory in Jøstenøya. These two factories work reasonably well today. The company Lerøy has been working for several years to merge the two factories and make the production process more efficient. This implies increase production efficiency for this company as well as logistical improvement since the two factories are now to be co-located by the harbour.

communication, gas, electricity and water supply system with huge water reservoirs and waste water solution. Hirtshals Harbour in Northern Denmark was initially considered a starting point for the establishment of a sea transport connection. The sea transport solution will reduce current cost of road transportation by 20–25%. The price depends on volumes of return cargo flows that will be obtained over some time. Government support and financing are of high importance in implementation phase. The calculations that have been done show that an increase in return cargo flows by 10–50% can reduce prices about 10–45% depending on the distance from receiving port to the end destinations [25]. Handling equipment, communication lines, two new aquaculture plants, warehouses, facilities of the companies providing service and maintenance for aquaculture and marine industry and another buildings

Hitra Port is located right in the fairway between Trondheim and Kristiansund and is therefore commonly considered a natural traffic and logistics hub for seafood and fishing industry in the Hitra/Frøya region. Hitra Coastal Port and its underlying commercial space, Hitra Industrial

as a "seafood logistics centre". The seafood logistics centre is directly connected to the main origins of seafood production in Mid-Norway. A well-connected transport network and extensive logistics capacity makes it possible to manage further increase in future seafood transport demand. The salmon production industry is growing steadily. Indeed, it exhibits great opportunities for cooperation with the EU markets and excellent possibilities to service Mid-Norway and Northern Norway. Many shipping companies and transportation companies are interested in using the Hitra Port as both a seafood and general cargo/unit loads hub, storage hotel, a regional distribution centre, trans-shipment terminal, hub for speed boats and ferry passengers, special storage, etc. Several companies have expressed interest in establishment in the area; some companies are in negotiating position. The world's largest salmon producer, Marine Harvest, has now secured 50 da (+ option for another 10 da) to build new salmon factory in this area. There will also be good opportunities for Hurtigruten (the daily coastal liner carrying both light freight and passengers) and cruise vessels in the port. Hitra municipality will establish a futureoriented and sustainable environment. The convenient location, along with great and new quay and harbour facilities, will provide great opportunities for economic development in the region and within the company. This indicates a multiple use potential for the harbour facility at Hitra. Much infrastructure has already been developed at Hitra during the last 2 years. The cargo terminal Hitra Coastal Port is operational from this year and includes terminal facilities, areas and equipment appropriate for both RO-RO and LO-LO services. The port's logistics centre provides possibilities for frozen and cold storage, offers warehousing and transit storage and provides a good distribution systems via Fv714 that is connected to the port through Hitra tunnel. The upgraded Fv714 is 75 km to Orkanger and 40 to Frøya and is conducive to efficient

Originally, the municipality decided to build the 120 acre industrial area of north-west side of Jøstenøya where the industrial park is located at Hitra. The first plots are already sold to Marine Harvest AS and Brødrene Sunde AS that secured themselves the land for development. Now also Bewi, Sunde Group and Lerøy are in the course of building factories at the industrial park adjacent with the two salmon factories. The Bewi company and their competitor Sunde

(1500 da). They are labelled

and facilities are included into the project and will be built after some time.

Park, total represent a development area of around 1.5 million m2

cargo distribution.

74 Agricultural Value Chain

Due to demand by the companies involved in establishing themselves in the industrial park at Jostenøya, the industrial area must expand eastwards with another 60 acres. The cost of the expansion is estimated to 46 million NOK; the municipality finances it by borrowing (through a loan). It is important that companies build their facilities quickly, so that the municipality can gradually collect tax on the investment in Jøstenøya. The Hitra municipality has a strong position and extraordinary potential for industrial growth in national context. It may be possible after meetings with the Ministry of Transport where the project was presented to apply for start-up support for fresh fish exports from Mid-Norway. It is given that the full power of a restructuring of the transport side must happen this year.

These descriptions reveal how value in the supply chain clearly is differentiated between the actors, and that value is networked. In addition, through networking what constitutes a good, valued solution becomes an emergent outcome of this type of exchange process. The discussion also is interesting because it does not reveal choice of transport mode as on the agenda, even though the industrial park also is designed as a harbour. It is therefore a clear implication that this is something the Coastal Alliance needs to market to the companies establishing themselves in the industrial park. This is because it is through the business relationships between the seafood exporters and their customers that the choice of transport mode is decided upon.

### **7. Conclusion: value as a networked phenomenon**

One of the main findings derived from this study is that the concept of "supply chains" is contingent of various developmental projects. The design of this study reveals this since its direct focus to challenges associated with freight reallocation from road to SSS through this study intentionally does not illustrate the seafood supply chain itself in detail. The provided narrative in this chapter considers accordingly features of this development project. This project organization is relatively fluid. It has no clear starting point, and it is unclear whether the activities to secure SSS freight of seafood by some form of political body, which this organization is in fact, will ever cease to exist. It is difficult to judge this as "inefficient" or "working well", since this project represents thereby a political organization. It is an expression of value concerns from firstly a societal level, including conveying environmental concerns held by society at large, and secondly the economic concerns of the companies involved in this project. Value is beheld by the perceiver, and this value is a contingent factor.

to align such value perceptions, we question the usefulness of this quest. Similarity between firms increases friction and poses threats of paradoxical happenings. In this project organization, it is pooling the similar actors that is especially challenging. They are at least potentially

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Diversity in the network is a prime source of complementarity and a source of force to innovate. The spread of value perceptions also leads us to consider that customer value is not necessarily better than the other value considerations. When achieving customer value, this is commonly in supply chain academia and practice considered as a hierarchical higher order value, as an explicit and therefore static purpose formulation; this rules out that interaction between supply chain actors can lead to a valuable learning process that customers may learn from the suppliers to improve the value of supply. Connectivity also implies the right to withhold sensitive information, embedded in a continuously developing project discourse. This leads us to the third and final observation. Value is a dynamic phenomenon. This feature of change is dependent on quality interconnectivity in the supply chain. This implies that integration is a key effort, not aligning explicit values, but to interconnect actors to communicate, to learn. Value is perception, and value therefore is uncertain in the case description. This implies a view that managing a supply chain can be viewed as a complex process, possibly a system. A systems' view is feasible when development seeks to integrate the network around

The main recommendation regarding the aim of the developmental project is to develop a network discourse (atmosphere, culture) where trust and learning are highlighted. Integrating should be facilitated by organizing, and continuously improving, interconnectivity between the project actors. The main force of development should accordingly be focused not first on seeking common values but in developing connectivity, trust and values regarded as emergent network properties. Value has proven emergent in this strategic project network. It is not an easy path; it may fail. We simply propose heightening integration efforts this to a higher level of, what may be called, strategic thinking, regarding project design. Following this process view, there are no guarantees regarding output characteristics. Focusing on the process and not the output certainly involves risks. Further research may be associated with inquiry more directly into the development of supply chains form such a process view. This may be organized following case study research strategy where action research may be considered as

competitors.

a common accepted statement of supply purpose.

one of the main research pillars in such a study.

\*Address all correspondence to: peen@himolde.no

Per Engelseth\*, Irina V. Karlsen, Shulin Huang and Arild Hoff

Department of Logistics, Molde University College, Specialized University in Logistics,

**Author details**

Molde, Norway

During inquiry, the researchers also encountered events which disrupted this investigation. For instance, actors became at a stage much more secretive due to what a logistics service provider perceived as unwillingness from central Norwegian government to support this reallocation effort. A perception of the supply chain as a culturally embedded game emerged. Clearly such perceptions are vital when contemplating the role of "value" in both the devolvement project itself and the value of economical salmon supply, being the aim of the project. This indicates that value is not limited to considerations associated with the perceptions of the various actors in this developmental network, but that value changes due to actions by one actor. Value in the project is networked and reciprocally interdependent. Actions are done by single networked actors, this leads to changes perceived by other actors and then these changes challenge the actors to enact upon these changes to make sense of the changed situation. This enactment through network interaction leads to actors rethinking how they further act in the process of development. This provides us a strong suggestion that "value" in the supply chain is a dynamic phenomenon. This statement implies we consider the developmental project as a supply chain itself, associated with levels of integration and challenges related to trust and coordination, different from the supply chain this project of freight reallocation is supposed to impact on.

Finally, within supply chain management literature, developing "customer value" has attained widespread use. Its use is almost synonymous with attaining a customer-responsive supply chain. Increasing attention and awareness to customers through the use of flexible resource implies creating an agile supply chain. This may be viewed as a source of competitive advantage. Through this study, focusing in those value resources in a particular food chain in different space and time dimensions, this space-oriented and static understanding is viewed as simplistic.

Through this study "value" in a supply chain context emerges as dynamic, a complex phenomenon. There are several aspects of this complexity revealed through this study. Value is networked. First, value is different in relation to the supply chain itself and the developmental project. This is, of course, related to that this study does not concern the supply chain of seafood export itself. Second, the supply chain is a network consisting of differentiated actors, a source of both complementarity and conflict. From a geographical point of view, this space dimension implies separateness and distance hampering intense personal interaction and that conceptions of value may differ between the different interdependent supply chain actors. While supply chain management, with its rather closed systems view, postulates that supply chain actors should integrate under the light of a common articulated purpose, this to align such value perceptions, we question the usefulness of this quest. Similarity between firms increases friction and poses threats of paradoxical happenings. In this project organization, it is pooling the similar actors that is especially challenging. They are at least potentially competitors.

Diversity in the network is a prime source of complementarity and a source of force to innovate. The spread of value perceptions also leads us to consider that customer value is not necessarily better than the other value considerations. When achieving customer value, this is commonly in supply chain academia and practice considered as a hierarchical higher order value, as an explicit and therefore static purpose formulation; this rules out that interaction between supply chain actors can lead to a valuable learning process that customers may learn from the suppliers to improve the value of supply. Connectivity also implies the right to withhold sensitive information, embedded in a continuously developing project discourse. This leads us to the third and final observation. Value is a dynamic phenomenon. This feature of change is dependent on quality interconnectivity in the supply chain. This implies that integration is a key effort, not aligning explicit values, but to interconnect actors to communicate, to learn. Value is perception, and value therefore is uncertain in the case description. This implies a view that managing a supply chain can be viewed as a complex process, possibly a system. A systems' view is feasible when development seeks to integrate the network around a common accepted statement of supply purpose.

The main recommendation regarding the aim of the developmental project is to develop a network discourse (atmosphere, culture) where trust and learning are highlighted. Integrating should be facilitated by organizing, and continuously improving, interconnectivity between the project actors. The main force of development should accordingly be focused not first on seeking common values but in developing connectivity, trust and values regarded as emergent network properties. Value has proven emergent in this strategic project network. It is not an easy path; it may fail. We simply propose heightening integration efforts this to a higher level of, what may be called, strategic thinking, regarding project design. Following this process view, there are no guarantees regarding output characteristics. Focusing on the process and not the output certainly involves risks. Further research may be associated with inquiry more directly into the development of supply chains form such a process view. This may be organized following case study research strategy where action research may be considered as one of the main research pillars in such a study.

### **Author details**

narrative in this chapter considers accordingly features of this development project. This project organization is relatively fluid. It has no clear starting point, and it is unclear whether the activities to secure SSS freight of seafood by some form of political body, which this organization is in fact, will ever cease to exist. It is difficult to judge this as "inefficient" or "working well", since this project represents thereby a political organization. It is an expression of value concerns from firstly a societal level, including conveying environmental concerns held by society at large, and secondly the economic concerns of the companies involved in this proj-

During inquiry, the researchers also encountered events which disrupted this investigation. For instance, actors became at a stage much more secretive due to what a logistics service provider perceived as unwillingness from central Norwegian government to support this reallocation effort. A perception of the supply chain as a culturally embedded game emerged. Clearly such perceptions are vital when contemplating the role of "value" in both the devolvement project itself and the value of economical salmon supply, being the aim of the project. This indicates that value is not limited to considerations associated with the perceptions of the various actors in this developmental network, but that value changes due to actions by one actor. Value in the project is networked and reciprocally interdependent. Actions are done by single networked actors, this leads to changes perceived by other actors and then these changes challenge the actors to enact upon these changes to make sense of the changed situation. This enactment through network interaction leads to actors rethinking how they further act in the process of development. This provides us a strong suggestion that "value" in the supply chain is a dynamic phenomenon. This statement implies we consider the developmental project as a supply chain itself, associated with levels of integration and challenges related to trust and coordination, different from the supply chain this project of freight reallocation is supposed to impact on.

Finally, within supply chain management literature, developing "customer value" has attained widespread use. Its use is almost synonymous with attaining a customer-responsive supply chain. Increasing attention and awareness to customers through the use of flexible resource implies creating an agile supply chain. This may be viewed as a source of competitive advantage. Through this study, focusing in those value resources in a particular food chain in different space and time dimensions, this space-oriented and static understanding is

Through this study "value" in a supply chain context emerges as dynamic, a complex phenomenon. There are several aspects of this complexity revealed through this study. Value is networked. First, value is different in relation to the supply chain itself and the developmental project. This is, of course, related to that this study does not concern the supply chain of seafood export itself. Second, the supply chain is a network consisting of differentiated actors, a source of both complementarity and conflict. From a geographical point of view, this space dimension implies separateness and distance hampering intense personal interaction and that conceptions of value may differ between the different interdependent supply chain actors. While supply chain management, with its rather closed systems view, postulates that supply chain actors should integrate under the light of a common articulated purpose, this

viewed as simplistic.

76 Agricultural Value Chain

ect. Value is beheld by the perceiver, and this value is a contingent factor.

Per Engelseth\*, Irina V. Karlsen, Shulin Huang and Arild Hoff

\*Address all correspondence to: peen@himolde.no

Department of Logistics, Molde University College, Specialized University in Logistics, Molde, Norway

### **References**

[1] Engelseth P, Karlsen IV, Huang S and Hoff A. Network Constraints of Reallocating Seafood Freight from Road to Sea. Operations and Supply Chain Management. An International Journal. Forthcoming. 2017

[17] Medda F, and Trujillo L. Short-sea shipping: An analysis of its determinants. Maritime

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[18] MacGregor. Shortsea RoRo Ships. 2016. Available from: http://www.macgregor.com/ en-global/macgregor/merchant-ships/shortsea-roro-ships/Pages/default.aspx/ [Accessed

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**Chapter 5**

Provisional chapter

**Agricultural Diversification in Japan**

Agricultural Diversification in Japan

Additional information is available at the end of the chapter

In recent few decades, Japanese agriculture has been facing many problems such as low profit rate, lack of labor force, abandonment of farmland, losing competitive competence for low-price, imported products, and so forth. One of the trials for encouraging Japanese agriculture by the government is agricultural diversification, which is a kind of restructuring value chain in order to gain profitability of farmers. The strategy is that, by integrating some elements of value chain of food industries including primary industry (agricultural production), secondary industry (processed food manufacturing), and tertiary industry (food retails and restaurants), and re-allocating farmers' business resources, farmers could be much more activated and their profit would be gained. In the past several decades, Japanese agricultural supply chain has strongly depended on Japan Agricultural Cooperatives (JA), and this caused some issues such as mismatching of demand and supply and low profitability of farmers. The policy of agricultural diversification was proposed to induce new integration of value chain and restructuring supply chain for solving these issues. This chapter presents some successful cases of agricultural

DOI: 10.5772/intechopen.73192

diversification in Japan and infers the Key Factor of Success (KFS) of such trials.

Keywords: Japan, agricultural diversification, agricultural cooperatives, supply chain,

In recent few decades, Japanese agriculture has been facing many problems such as low profit rate, lack of labor force, abandonment of farmland, losing competitive competence for low

> © 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited.

© 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use,

distribution, and reproduction in any medium, provided the original work is properly cited.

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.73192

Makoto Hirano

Makoto Hirano

Abstract

KFS

1. Introduction and background

price, imported products, and so forth.


#### **Agricultural Diversification in Japan** Agricultural Diversification in Japan

#### Makoto Hirano Makoto Hirano

[30] Ahumada O and Villalobos JR. Application of planning models in the agri-food supply chain: A review. European Journal of Operational Research. 2009;**196**(1):1-20

[31] Stevenson S, and Pirog R. Values-based food supply chains: Strategies for agri-food enterprises-of-the-middle. Annual Meeting of the Rural Sociological Society; Manchester, New Hampshire. July 28. 2008. Available at: http://www.allacademic.com/meta/p244246\_

[32] Perols J, Zimmermann C and Kortmann S. On the relationship between supplier integration and time-to-market. Journal of Operations Management. 2013;**31**(3):153-167

index [Accessed 05-05-2010]

80 Agricultural Value Chain

Additional information is available at the end of the chapter Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.73192

#### Abstract

In recent few decades, Japanese agriculture has been facing many problems such as low profit rate, lack of labor force, abandonment of farmland, losing competitive competence for low-price, imported products, and so forth. One of the trials for encouraging Japanese agriculture by the government is agricultural diversification, which is a kind of restructuring value chain in order to gain profitability of farmers. The strategy is that, by integrating some elements of value chain of food industries including primary industry (agricultural production), secondary industry (processed food manufacturing), and tertiary industry (food retails and restaurants), and re-allocating farmers' business resources, farmers could be much more activated and their profit would be gained. In the past several decades, Japanese agricultural supply chain has strongly depended on Japan Agricultural Cooperatives (JA), and this caused some issues such as mismatching of demand and supply and low profitability of farmers. The policy of agricultural diversification was proposed to induce new integration of value chain and restructuring supply chain for solving these issues. This chapter presents some successful cases of agricultural diversification in Japan and infers the Key Factor of Success (KFS) of such trials.

DOI: 10.5772/intechopen.73192

Keywords: Japan, agricultural diversification, agricultural cooperatives, supply chain, KFS

### 1. Introduction and background

In recent few decades, Japanese agriculture has been facing many problems such as low profit rate, lack of labor force, abandonment of farmland, losing competitive competence for low price, imported products, and so forth.

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited. © 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Japanese contemporary agriculture was historically characterized by some policies on agriculture by the General Headquarters (GHQ) governing Japan right after the end of the Second World War in 1945. GHQ executed two important policies for reforming Japanese agriculture, as follows.

to Western/American dishes, changed from house cooking to processed food, eating out and fast food, changed from family eating to solitary eating, and so forth. The agriculture products which could fit to the current Japanese food market have been changed, but many Japanese farmers could not have caught up with the changed market, because they could not know well

Agricultural Diversification in Japan http://dx.doi.org/10.5772/intechopen.73192 83

Also, the complicated supply chain system of Japanese agriculture with many brokers, including JA, retail shops, family restaurants, processed food manufacturers, and so forth, lowered the profit of farmers. Their total sales in Japanese food industry are less than 20% of the total food market transaction. The flow of the food material in Japan is schematically indicated in

Low productivity and low profitability of Japanese agriculture resulted younger generation's moving out from farms to manufacturing factories or to other industries' offices in urban areas and thus resulted depopulation and aging in rural regions. This caused negative feedback to regional agriculture and thus resulted in lack of labor force and abandonment of cultivating

To overcome the situation of Japanese agriculture, recently MAFF in Japan made a policy of agricultural diversification. The idea is sometimes called as "sixth sector industrialization." The connotation of the term is a combination of primary industry (agricultural production), secondary industry (processed food manufacturing), and tertiary industry (retails of food and restaurants) by re-allocating farm's business resources and assets. In another word, by covering other elements in value chain of food industries, farmers are expected to adjust their products to market demands and gain their profit by combining the other services. This is a kind of re-allocation of resources and new integration of agricultural value chain. However, the reality was that the policy could not work so easily because the Japanese traditional farmers were not familiar with retail service or processing manufacturing. Most of them lack

the capability of diversification or integration of value chain.

Figure 1. Value chain of agriculture food industries in Japan.

about market in the division of labor in the conventional agriculture value chain.

Figure 1.

fields in regions.


The farmland emancipation policy resulted birth and growth of many independent farmers, stimulated motivation of agriculture production by those people, and advanced the food production in Japan at that time, and JA functioned as effective food supply chain for Japanese nation.

However, after a long time passing, these two policies resulted in two serious issues for Japanese agriculture.


The demand of Japanese food market has been changing along the change of Japanese society after the war. The food preference of Japanese people changed from traditional Japanese dishes to Western/American dishes, changed from house cooking to processed food, eating out and fast food, changed from family eating to solitary eating, and so forth. The agriculture products which could fit to the current Japanese food market have been changed, but many Japanese farmers could not have caught up with the changed market, because they could not know well about market in the division of labor in the conventional agriculture value chain.

Japanese contemporary agriculture was historically characterized by some policies on agriculture by the General Headquarters (GHQ) governing Japan right after the end of the Second World War in 1945. GHQ executed two important policies for reforming Japanese agriculture,

1. Emancipating farmland from rich farmland-owners and re-allocating it to poor peasants in order to activate Japanese agriculture and improve food production of Japan, which was

2. Forming agricultural cooperatives [1] to advance the supply chain of food industries in Japan, that is, establishing Japanese agricultural cooperatives (JA) [2, 3] in 1948 based on Agricultural Association that was established during the war to control national food

The farmland emancipation policy resulted birth and growth of many independent farmers, stimulated motivation of agriculture production by those people, and advanced the food production in Japan at that time, and JA functioned as effective food supply chain

However, after a long time passing, these two policies resulted in two serious issues for

3. The farmland emancipation policy resulted that the average level of the Japanese farmers' production was lowered because the average level of the farmland area was lowered. The small farmland area also obstructed modernization of agriculture by inducing cultivating machines. The difficulty for inducing modern machinery system into agriculture caused low productivity and high production cost of agriculture in Japan comparing to that in other countries. According to the data of year 2010 by the Ministry of Agriculture, Forestry, and Fisheries (MAFF) in Japan, the average farmland area per one farm in Japan is around 2 ha, that is almost 1/100 of that in the USA. Therefore, in the progress of globalization and trade liberalization on food market, Japanese agriculture has been losing their competitive

4. JA has been grown to a huge organization along the growth of Japanese economy, as indicated by the fact that the number of the total members of JA grew over 10 million in 2014. The business area of JA was enlarged to cover wide area regarding farmers' daily lives, such as banking, insurance, sales of seeds, sales and lease of cultivating machines, managing super markets, managing gas stations, publishing newspapers, postal service, and so forth. Particularly, their power on farmers' banking became very large as indicated that they are now dealing the amount of savings around a hundred trillion yen (circa a trillion US dollar). By the growth of JA, their organization has changed to a large bureaucratic one and lost the flexibility as a function of supply chain in agriculture. Because the distance between farmers and consumption market became large in the huge bureaucratic supply chain system,

sometimes it became difficult for farmers' products to fit the market demand.

The demand of Japanese food market has been changing along the change of Japanese society after the war. The food preference of Japanese people changed from traditional Japanese dishes

as follows.

82 Agricultural Value Chain

supply.

for Japanese nation.

Japanese agriculture.

competence.

much damaged during the war.

Also, the complicated supply chain system of Japanese agriculture with many brokers, including JA, retail shops, family restaurants, processed food manufacturers, and so forth, lowered the profit of farmers. Their total sales in Japanese food industry are less than 20% of the total food market transaction. The flow of the food material in Japan is schematically indicated in Figure 1.

Low productivity and low profitability of Japanese agriculture resulted younger generation's moving out from farms to manufacturing factories or to other industries' offices in urban areas and thus resulted depopulation and aging in rural regions. This caused negative feedback to regional agriculture and thus resulted in lack of labor force and abandonment of cultivating fields in regions.

To overcome the situation of Japanese agriculture, recently MAFF in Japan made a policy of agricultural diversification. The idea is sometimes called as "sixth sector industrialization." The connotation of the term is a combination of primary industry (agricultural production), secondary industry (processed food manufacturing), and tertiary industry (retails of food and restaurants) by re-allocating farm's business resources and assets. In another word, by covering other elements in value chain of food industries, farmers are expected to adjust their products to market demands and gain their profit by combining the other services. This is a kind of re-allocation of resources and new integration of agricultural value chain. However, the reality was that the policy could not work so easily because the Japanese traditional farmers were not familiar with retail service or processing manufacturing. Most of them lack the capability of diversification or integration of value chain.

Figure 1. Value chain of agriculture food industries in Japan.

This chapter describes many successful cases of actual trials of agricultural diversification in Japan to obtain implications on Key Factor of Success (KFS) of agricultural diversification. (Some of the cases have been once introduced by the author in different aspects [4, 5].) If some of the implications could be effective for the other regions/countries, this study might be a small clue to advance the world agriculture.

of the enterprise were only two persons at first. After that, he became a CEO of the enterprise. His first mission was to encourage the local agriculture of these small villages in mountainous area. But the agriculture products of these villages were not characterized with special advantages. Their products were ordinary regional items such as local chestnuts, mushrooms, river

Agricultural Diversification in Japan http://dx.doi.org/10.5772/intechopen.73192 85

One important event for advancing his business was the encounter with a certain designer, named Mr. Makoto Umebara. Mr. Umebara was a very unique designer focusing on package design and catch copy for local products. His first remarkable work on local products was the designing package and making a catchy on bonito, fish. There was a fishery enterprise faced on the crisis of bankruptcy. They were involved in traditional fishing using rod. Their fishery product level was too small compared to that of large enterprise with fishing using net, even though their fishes' quality was good without damages by net. They requested Mr. Umebara to design the package of a box for carrying bonito fish. Therefore, Mr. Umebara came up with a catch copy for the product as "Professional fisherman fished it, and he cocked it in the best way." His design of the package emphasized the primitive taste of fishery by rod with simple color construction. By his copy and package, the item suddenly became popular and could be sold with higher price than that of ordinary bonito by net fishing. That is, he successfully

Mr. Azechi heard about the fame of Mr. Umebara and asked him to advertise the local products of Shimanto Drama. However, Mr. Umebara's strategy was not direct advertising the products. First, he published a book cheering the wonder of the lives in riverside. The title of the book was just "Water," and the content of the book consists of many essays written by many famous, eminent persons on politics, art, literature, illustration, and so forth. Generally, it is not so easy to request those persons to write an essay for a book for such small local villages and a tiny enterprise. But Mr. Umebara asked it to them without any special connection just only by saying "If you could accept our proposal, we would like to gift you a lot of river sweet fishes for a year as a sign of appreciation, instead of money." This unique approach

Mr. Umebara also recommended to issue a magazine tilted "Lives in river-side." They established a membership club to love lives in riverside and issued a magazine provided to the members. The contents of the magazines were the description of the wonder of lives in river-

These activities were thought to be a kind of branding the villages along Shimanto river. Gradually, their products were getting popularity with the Shimanto brand that has an

The relationship between regional farmers and Mr. Azechi is very tight and close. Mr. Azechi contributed to the region through his business of retailing the Shimanto products. In that sense, even though the regional farmers were not familiar with marketing and branding, Mr.

Now, Mr. Azechi is also managing Michi-no-eki, a local shopping store including restaurant for regional agriculture products, established by the government for encouraging regional

led a success, and around 30 prominent persons wrote an essay for them.

impression of "slow lives," "sustainable life style with nature," or so forth.

Azechi in behalf of them established business for them.

shrimps, and so forth.

established a brand of rod fishing.

side in local mountainous area.

### 2. Framework of research

This chapter describes totally seven cases of actual diversification in Japanese agriculture to obtain implications on KFS.

The cases are classified to four categories by the difference of the key persons for establishing a new business, as follows.


The research focuses on the following standpoints.


Based on these case studies, KFS of diversification will be discussed. For each case, direct interviewing and hearing to the key persons were effective to clarify detailed background and conditions for business success. Particularly, it was too difficult to get information on key person's personal motivation for business and relationship between key person and local community, only by literatures and public materials. Direct talking with those persons was very effective in this aspect.

### 3. Cases of diversification by brokers

#### 3.1. Case of Mr. Risho Azechi and the villages along Shimanto river

The first case of key person for agricultural diversification is Mr. Risho Azechi. He was working for a local JA office at first when he was young, and then, he became a staff of an enterprise (a third sector, a semi-public corporation) for encouraging local villages along Shimanto river. The enterprise was named as "Shimanto Drama." The whole staff members of the enterprise were only two persons at first. After that, he became a CEO of the enterprise. His first mission was to encourage the local agriculture of these small villages in mountainous area. But the agriculture products of these villages were not characterized with special advantages. Their products were ordinary regional items such as local chestnuts, mushrooms, river shrimps, and so forth.

This chapter describes many successful cases of actual trials of agricultural diversification in Japan to obtain implications on Key Factor of Success (KFS) of agricultural diversification. (Some of the cases have been once introduced by the author in different aspects [4, 5].) If some of the implications could be effective for the other regions/countries, this study might be a

This chapter describes totally seven cases of actual diversification in Japanese agriculture to

The cases are classified to four categories by the difference of the key persons for establishing a

c. Some other conditions for diversification, such as business strategy on branding/promo-

Based on these case studies, KFS of diversification will be discussed. For each case, direct interviewing and hearing to the key persons were effective to clarify detailed background and conditions for business success. Particularly, it was too difficult to get information on key person's personal motivation for business and relationship between key person and local community, only by literatures and public materials. Direct talking with those persons was

The first case of key person for agricultural diversification is Mr. Risho Azechi. He was working for a local JA office at first when he was young, and then, he became a staff of an enterprise (a third sector, a semi-public corporation) for encouraging local villages along Shimanto river. The enterprise was named as "Shimanto Drama." The whole staff members

tion, market categories, market size, market characteristics, and so forth

small clue to advance the world agriculture.

2. Framework of research

84 Agricultural Value Chain

obtain implications on KFS.

new business, as follows.

very effective in this aspect.

1. Cases of diversification by brokers.

3. Cases of diversification by retailers.

2. Cases of diversification by processed food manufacturers.

4. Case of diversification by business persons or enterprises.

b. Relationship and collaboration between farmers and key person

3.1. Case of Mr. Risho Azechi and the villages along Shimanto river

The research focuses on the following standpoints.

3. Cases of diversification by brokers

a. Motivation and capability of key person for business

One important event for advancing his business was the encounter with a certain designer, named Mr. Makoto Umebara. Mr. Umebara was a very unique designer focusing on package design and catch copy for local products. His first remarkable work on local products was the designing package and making a catchy on bonito, fish. There was a fishery enterprise faced on the crisis of bankruptcy. They were involved in traditional fishing using rod. Their fishery product level was too small compared to that of large enterprise with fishing using net, even though their fishes' quality was good without damages by net. They requested Mr. Umebara to design the package of a box for carrying bonito fish. Therefore, Mr. Umebara came up with a catch copy for the product as "Professional fisherman fished it, and he cocked it in the best way." His design of the package emphasized the primitive taste of fishery by rod with simple color construction. By his copy and package, the item suddenly became popular and could be sold with higher price than that of ordinary bonito by net fishing. That is, he successfully established a brand of rod fishing.

Mr. Azechi heard about the fame of Mr. Umebara and asked him to advertise the local products of Shimanto Drama. However, Mr. Umebara's strategy was not direct advertising the products. First, he published a book cheering the wonder of the lives in riverside. The title of the book was just "Water," and the content of the book consists of many essays written by many famous, eminent persons on politics, art, literature, illustration, and so forth. Generally, it is not so easy to request those persons to write an essay for a book for such small local villages and a tiny enterprise. But Mr. Umebara asked it to them without any special connection just only by saying "If you could accept our proposal, we would like to gift you a lot of river sweet fishes for a year as a sign of appreciation, instead of money." This unique approach led a success, and around 30 prominent persons wrote an essay for them.

Mr. Umebara also recommended to issue a magazine tilted "Lives in river-side." They established a membership club to love lives in riverside and issued a magazine provided to the members. The contents of the magazines were the description of the wonder of lives in riverside in local mountainous area.

These activities were thought to be a kind of branding the villages along Shimanto river. Gradually, their products were getting popularity with the Shimanto brand that has an impression of "slow lives," "sustainable life style with nature," or so forth.

The relationship between regional farmers and Mr. Azechi is very tight and close. Mr. Azechi contributed to the region through his business of retailing the Shimanto products. In that sense, even though the regional farmers were not familiar with marketing and branding, Mr. Azechi in behalf of them established business for them.

Now, Mr. Azechi is also managing Michi-no-eki, a local shopping store including restaurant for regional agriculture products, established by the government for encouraging regional farmers. At first, the local government opposed to build it in the rural area where Mr. Azechi proposed because of low traffic level. However, after once they built a shop there, over a hundred thousand people visited there for half of a year in terms of the charm of the shop.

In these two cases, regional JA organization has very tight relationship with regional farmers, and they were involved in effortful marketing, direct retail service, and also restaurant service. Their businesses were also covering processed food manufacturing. The value chain of agriculture was completely reformed and integrated as schematically indicated in Figure 2, and as

Agricultural Diversification in Japan http://dx.doi.org/10.5772/intechopen.73192 87

4.1. Mr. Fumiya Hamamachi and ice-cream business utilizing regional agricultural products

Mr. Fumiya Hamamachi was originally a fisherman in the rural village. He was engaged in fishery when he was a teenager. However, as he had a dangerous experience in the sea, he quit fishery and changed his job to sales, by working for a certain enterprise. He was involved in sales and marketing of ice-cream items that his enterprise purchased from a certain manufacturer. Spending many years of much effort, he got some stable customers for ice-cream items. But the enterprise changed their strategy of sales and gave up selling ice-cream items. This was the motivation why Mr. Hamada began to establish his own business to sell ice-cream items. Because he had not sufficient capitalization at that time, he should have made much effort to establish his own business. During the hardship of establishing his business, many village people helped him by their primitive personalities and kindness. Those experiences affected him and produced the strong feeling of appreciation to region and regional community, he mentioned later. Gradually, he had advanced his business and made up his mind to initiate the

One remarkable characteristics of Mr. Hamada was his excellent capability to find out delicious fruits/vegetables and to make a friend with the regional farmers who produce such delicious products. Because he loves region and regional community so much that the farmers were willingly accepting special contracts with him about providing their delicious products. As a result, Mr. Hamada's ice-cream products utilizing many delicious fruits/vegetables

Mr. Hamada's another excellent capability was on marketing and promotion. Because of his long-time experience/effort on sales, his capability on communicating with consumers and retailers became excellent. He always visited the retail front by himself whether it is domestic

Again, in this case, Mr. Makoto Umebara, a charismatic designer, played an important role to promote the enterprise of Mr. Hamada and his products. Mr. Hamada asked Mr. Umebara to design the package of Ice-cream items and make a catchy for his enterprise. "Running about

In this case, Mr. Hamada played a role of catalysis and bridge between farmers and market. Usually, regional farmers are not good at communicating with consumers in market because they are concentrated only in cultivating like a craft person. So that, the information and the

for seeking a delicious food" was the catchy that Mr. Umebara came up with.

4. Cases of diversification by processed food manufacturers

business of manufacturing ice-cream products by his own factory [5].

became popular and famous even for consumers in urban area.

or abroad and communicated with people directly.

a result, it gained the profit of farmers.

#### 3.2. Mr. Mochifumi Toutani and citron business in Umaji village

Mr. Mochifumi Toutani was a leader of local JA organization of a rural village, named Umazi (meaning "a road for houses"). The village was located in mountainous area, and their population was only about one thousand. They were engaged in forestry industry in the past. However, by globalization, their products lost the competitive competence comparing to low price materials imported from emerging countries. They lost the income through globalization. As they could not depend on forestry, they initiated a new business by utilizing citron (Yuzu, a kind of oranges) that they were incidentally growing in the forest. However, most of their citrons were deformed and not suitable for selling as a fruit item. So that, they made juice by processing citrons. But it was also very difficult for them to sell their juice items because there were lots of similar products in the market. Mr. Toutani then focused on marketing and promotion on their citron juice. They emphasized that Umaji village was a rural, remote village but was plentiful of nature, and the people's personality in Umaji is primitive and friendly. After the promotion effort of over 20 years, their village name became famous and the brand of Umaji, accompanied the image of natural lives in mountainous area, was proliferated.

Particularly, improvement of Internet and nation-wide delivery service gave them advantage in business. Nowadays, they were selling their citron products including juice, processed seasonings, spices, and so forth through Internet and delivery service. They have their own factory for processing citron, and the factory is opened for tourists as a kind of tourism service. They have a restaurant in the factory and hold some kinds of attractions for gaining tourists for the village. Their annual sales reach up to 3 billion yen (around 30million US dollar) with the profit rate of over 10%. Growing citron and processed food industry on it are now their main businesses to support the village.

Figure 2. Integrated value chain by broker.

In these two cases, regional JA organization has very tight relationship with regional farmers, and they were involved in effortful marketing, direct retail service, and also restaurant service. Their businesses were also covering processed food manufacturing. The value chain of agriculture was completely reformed and integrated as schematically indicated in Figure 2, and as a result, it gained the profit of farmers.

### 4. Cases of diversification by processed food manufacturers

farmers. At first, the local government opposed to build it in the rural area where Mr. Azechi proposed because of low traffic level. However, after once they built a shop there, over a hundred thousand people visited there for half of a year in terms of the charm of the shop.

Mr. Mochifumi Toutani was a leader of local JA organization of a rural village, named Umazi (meaning "a road for houses"). The village was located in mountainous area, and their population was only about one thousand. They were engaged in forestry industry in the past. However, by globalization, their products lost the competitive competence comparing to low price materials imported from emerging countries. They lost the income through globalization. As they could not depend on forestry, they initiated a new business by utilizing citron (Yuzu, a kind of oranges) that they were incidentally growing in the forest. However, most of their citrons were deformed and not suitable for selling as a fruit item. So that, they made juice by processing citrons. But it was also very difficult for them to sell their juice items because there were lots of similar products in the market. Mr. Toutani then focused on marketing and promotion on their citron juice. They emphasized that Umaji village was a rural, remote village but was plentiful of nature, and the people's personality in Umaji is primitive and friendly. After the promotion effort of over 20 years, their village name became famous and the brand of

Umaji, accompanied the image of natural lives in mountainous area, was proliferated.

Particularly, improvement of Internet and nation-wide delivery service gave them advantage in business. Nowadays, they were selling their citron products including juice, processed seasonings, spices, and so forth through Internet and delivery service. They have their own factory for processing citron, and the factory is opened for tourists as a kind of tourism service. They have a restaurant in the factory and hold some kinds of attractions for gaining tourists for the village. Their annual sales reach up to 3 billion yen (around 30million US dollar) with the profit rate of over 10%. Growing citron and processed food industry on it are now their main

3.2. Mr. Mochifumi Toutani and citron business in Umaji village

businesses to support the village.

86 Agricultural Value Chain

Figure 2. Integrated value chain by broker.

#### 4.1. Mr. Fumiya Hamamachi and ice-cream business utilizing regional agricultural products

Mr. Fumiya Hamamachi was originally a fisherman in the rural village. He was engaged in fishery when he was a teenager. However, as he had a dangerous experience in the sea, he quit fishery and changed his job to sales, by working for a certain enterprise. He was involved in sales and marketing of ice-cream items that his enterprise purchased from a certain manufacturer. Spending many years of much effort, he got some stable customers for ice-cream items. But the enterprise changed their strategy of sales and gave up selling ice-cream items. This was the motivation why Mr. Hamada began to establish his own business to sell ice-cream items. Because he had not sufficient capitalization at that time, he should have made much effort to establish his own business. During the hardship of establishing his business, many village people helped him by their primitive personalities and kindness. Those experiences affected him and produced the strong feeling of appreciation to region and regional community, he mentioned later. Gradually, he had advanced his business and made up his mind to initiate the business of manufacturing ice-cream products by his own factory [5].

One remarkable characteristics of Mr. Hamada was his excellent capability to find out delicious fruits/vegetables and to make a friend with the regional farmers who produce such delicious products. Because he loves region and regional community so much that the farmers were willingly accepting special contracts with him about providing their delicious products. As a result, Mr. Hamada's ice-cream products utilizing many delicious fruits/vegetables became popular and famous even for consumers in urban area.

Mr. Hamada's another excellent capability was on marketing and promotion. Because of his long-time experience/effort on sales, his capability on communicating with consumers and retailers became excellent. He always visited the retail front by himself whether it is domestic or abroad and communicated with people directly.

Again, in this case, Mr. Makoto Umebara, a charismatic designer, played an important role to promote the enterprise of Mr. Hamada and his products. Mr. Hamada asked Mr. Umebara to design the package of Ice-cream items and make a catchy for his enterprise. "Running about for seeking a delicious food" was the catchy that Mr. Umebara came up with.

In this case, Mr. Hamada played a role of catalysis and bridge between farmers and market. Usually, regional farmers are not good at communicating with consumers in market because they are concentrated only in cultivating like a craft person. So that, the information and the advice on the market, that Mr. Hamada could give them, were so important and effective for the farmers. They got the direction of products and became proud of themselves by answering to the request from Mr. Hamada. Of course, Mr. Hamada's enterprise is independent from farmers, but actually the mission of the enterprise is contributing to region and regional farmers; therefore, the activities of Mr. Hamada enlarged the business of the farmers and integrated the value chain of agriculture.

#### 4.2. Hamada family and their cake business collaborating with local farms

Hamakou Corporation is a famous cake manufacturer, owning shops in local city, Kochi, and was founded in 1952. The founder of Hamakou Corporation was a professor of a local university. He was very curious about western cakes particularly Baumkuchen, a round-shape cake developed in German. He personally researched how to make such a cake, and after spending many years with much effort, he successfully realized the cake by his own cocking manner. This is an origin of the famous cake manufacturer named Hamakou. Now, they have over 200 employees and annual sales of around 1.7 billion yen (around 17 million US dollar), and their business is covering processed food manufacturing, managing 16 shops and a hotel including restaurants and also a fruit farm. The current CEO, Mr. Yukihiro Hamada, is a ground son of the founder.

named "Kanzashi (meaning "ornamental hairpin")," which marked a big hit called as one of the masterpieces representing regional cakes. After the break of this item, they have been continuing the effort to improve by testing a variety of devices over 200 hundred times for 4 years. They always continue improvement of products by absorbing customers' voices and

Agricultural Diversification in Japan http://dx.doi.org/10.5772/intechopen.73192 89

To realize such a high-quality service, they respect communication among employees. Everyday, the CEO reads whole members' daily reports and informs them his thinking at least once a week. In order to share the affection on cakes not only with customers but also with every

Their products were selected as the second excellent item in all of the regional food products in nation by Japan Air Line (JAL) and were served for business class seat customers in the

The activities of Kochi Ice and Hamakou are schematically indicated in Figure 3. The CEOs of these enterprises played a role of binding market and regional farms. Mostly, the businesses of processed food manufacturer are designed business carefully to match the market and the preference of consumers because those people are located much closer to market than framers. So that manufacturer of processed food can be a good guide of market for framers. If regional manufacturer has a strong hometown feeling and solidarity with regional community, they could establish tight relationship with regional farmers and could contribute to integrate the

Mr. Kouji Usui was working for a certain greengrocery when he was young. The name of the green grocery was Tosa Senri. Tosa was a name of the place of the farmers who supply the

employee, daily communication is very important, the CEO mentioned.

demands.

airplane of JAL.

agricultural value chain.

5. Cases of diversification by retailers

Figure 3. Integration of value chain by manufacturer.

5.1. Mr. Kouji Usui and his activities on vegetables business

As a manufacturer of processed food, they have been developed a variety of items such as Western cakes, Japanese cakes, jams, beverages, jelly, local beer, and so forth. Their policy was to think their business as cultural activities. That is, to make a cake was a kind of transferring the regional culture, they thought. Particularly, Japanese cake was an enjoyment on beauty of change of seasons, which was one of the remarkable characteristics of Japanese nature, they mentioned. They emphasized that Japanese people historically have been enjoying Japanese nature and its beauty by tasting traditional cakes. Also, they respected special agricultural products in region and insisted to use those products for their cakes to convey what a wonderful treasure the region has to regional people. They also mentioned that the founders' son, the second CEO, has learned many things from French people. Particularly, one thing was that they respected their regional agricultural products when they make jerry cakes. These thinking ways and policies were transferred as a family motto through family business of Hamakou.

Based on the motto, they also initiated hotel business over 20 years ago. On the beautiful hill facing seashore, they have been managing a hotel with a restaurant and a fruit farm by themselves. The purpose of this business is direct transferring the attraction of regional fruits and vegetables to customers. They are also involved in producing processed food products as OEM (Original Equipment Manufacturing) for many other regions' enterprises. The purpose of this activity came from their mission as to transfer the charms and attractions of the regional agricultural products to many people in other regions. Their products are the tools for communication with people and for sharing joy of regional culture/nature, they mentioned.

They themselves design the packages of their products and develop new items because they mentioned that they are the best persons to know their motto on their items. Developing new items is one of the most important subjects of their business. They developed a famous item

Figure 3. Integration of value chain by manufacturer.

advice on the market, that Mr. Hamada could give them, were so important and effective for the farmers. They got the direction of products and became proud of themselves by answering to the request from Mr. Hamada. Of course, Mr. Hamada's enterprise is independent from farmers, but actually the mission of the enterprise is contributing to region and regional farmers; therefore, the activities of Mr. Hamada enlarged the business of the farmers and

Hamakou Corporation is a famous cake manufacturer, owning shops in local city, Kochi, and was founded in 1952. The founder of Hamakou Corporation was a professor of a local university. He was very curious about western cakes particularly Baumkuchen, a round-shape cake developed in German. He personally researched how to make such a cake, and after spending many years with much effort, he successfully realized the cake by his own cocking manner. This is an origin of the famous cake manufacturer named Hamakou. Now, they have over 200 employees and annual sales of around 1.7 billion yen (around 17 million US dollar), and their business is covering processed food manufacturing, managing 16 shops and a hotel including restaurants and also a fruit farm. The current CEO, Mr. Yukihiro Hamada, is a ground son of

As a manufacturer of processed food, they have been developed a variety of items such as Western cakes, Japanese cakes, jams, beverages, jelly, local beer, and so forth. Their policy was to think their business as cultural activities. That is, to make a cake was a kind of transferring the regional culture, they thought. Particularly, Japanese cake was an enjoyment on beauty of change of seasons, which was one of the remarkable characteristics of Japanese nature, they mentioned. They emphasized that Japanese people historically have been enjoying Japanese nature and its beauty by tasting traditional cakes. Also, they respected special agricultural products in region and insisted to use those products for their cakes to convey what a wonderful treasure the region has to regional people. They also mentioned that the founders' son, the second CEO, has learned many things from French people. Particularly, one thing was that they respected their regional agricultural products when they make jerry cakes. These thinking ways and policies were transferred as a family motto through family business of Hamakou.

Based on the motto, they also initiated hotel business over 20 years ago. On the beautiful hill facing seashore, they have been managing a hotel with a restaurant and a fruit farm by themselves. The purpose of this business is direct transferring the attraction of regional fruits and vegetables to customers. They are also involved in producing processed food products as OEM (Original Equipment Manufacturing) for many other regions' enterprises. The purpose of this activity came from their mission as to transfer the charms and attractions of the regional agricultural products to many people in other regions. Their products are the tools for communication with people and for sharing joy of regional culture/nature, they mentioned.

They themselves design the packages of their products and develop new items because they mentioned that they are the best persons to know their motto on their items. Developing new items is one of the most important subjects of their business. They developed a famous item

4.2. Hamada family and their cake business collaborating with local farms

integrated the value chain of agriculture.

the founder.

88 Agricultural Value Chain

named "Kanzashi (meaning "ornamental hairpin")," which marked a big hit called as one of the masterpieces representing regional cakes. After the break of this item, they have been continuing the effort to improve by testing a variety of devices over 200 hundred times for 4 years. They always continue improvement of products by absorbing customers' voices and demands.

To realize such a high-quality service, they respect communication among employees. Everyday, the CEO reads whole members' daily reports and informs them his thinking at least once a week. In order to share the affection on cakes not only with customers but also with every employee, daily communication is very important, the CEO mentioned.

Their products were selected as the second excellent item in all of the regional food products in nation by Japan Air Line (JAL) and were served for business class seat customers in the airplane of JAL.

The activities of Kochi Ice and Hamakou are schematically indicated in Figure 3. The CEOs of these enterprises played a role of binding market and regional farms. Mostly, the businesses of processed food manufacturer are designed business carefully to match the market and the preference of consumers because those people are located much closer to market than framers. So that manufacturer of processed food can be a good guide of market for framers. If regional manufacturer has a strong hometown feeling and solidarity with regional community, they could establish tight relationship with regional farmers and could contribute to integrate the agricultural value chain.

### 5. Cases of diversification by retailers

#### 5.1. Mr. Kouji Usui and his activities on vegetables business

Mr. Kouji Usui was working for a certain greengrocery when he was young. The name of the green grocery was Tosa Senri. Tosa was a name of the place of the farmers who supply the vegetables to this grocery, and Senri was the name of the place where the grocery was located and the consumers' living area. As indicated in the name of the shop, the owner's policy was bridging consumers and framers. So that, in this grocery, there were amount of POPs (point of purchase advertisings), which describe and explain the details of product items, such as where is the place of production, who is a farmer produced the product, what is a special characteristics of the product, how to cook it, and so forth. Those POPs were written by Mr. Usui's hand directly. To collect the information for POPs, he often visited the farmers' places and asked them directly by sometimes staying over in the farmers' houses. Also, at that opportunity, he transferred the consumers' information to the framers, such as what was the reaction of the consumers, what they said about the products, and so forth. For that purpose, he always chatted with the customers in the grocery and asked them about their opinion, satisfaction, impression, and request for the products. That is, Mr. Usui played a role of exchanging/ transferring information and bridging between farmers and consumers. On the surface, the business of this grocery was selling fruits and vegetables. However, their business had an aspect of information service. Their manner of transferring information depended not on information technology like Internet but on human power, somewhat old-fashioned style method. However, it was so good to transfer the detailed information from human to human, rather than the transferring by Internet or some other IT methods. By using human network transferring, their information was very deep, detailed, and sensitive.

they mentioned. However, by globalization, the lower price pineapple made in Taiwan and Vietnam surpassed their products in the market, and the factory of Japanese pineapple was

Agricultural Diversification in Japan http://dx.doi.org/10.5772/intechopen.73192 91

Mr. Tamamori, a younger member of the board of trade of the island at that time, watched the distress of the farmers and made up mind to support them by selling their pineapple. He ran about all over nation to promote the pineapples of Iriomote. He went to many railway stations and sang a traditional song of Iriomote with ethnic instrument to appeal that Iriomote was a peaceful island with beautiful nature. After over 10 years' effort of promotion, Iriomote pineapple got popularity among Japanese people and many sight-seeing tourists tended to purchase it with a higher price of several hundred yen, over 10 times that for the factory in the

Nowadays, the proliferation of Internet and delivery system accelerated the business of Iriomote pineapple, so that Iriomote pineapple became one of the famous souvenirs of

In this case, the relationship between farmers and the key persons was very tight. In the small community like an island, every one should collaborate with each other for survival. The binding among islanders was so strong that everyone has a strong passion for contributing to island based on their solidarity. In that case, if the key person has a capability of business management, he/she can contribute to build an effective integration of agriculture value chain. The two cases described here have the same characteristics, tight binding between farmers and retailers and also close communication between farmers and consumers through the medium of retailers. The realized integration of food industry is schematically indicated in Figure 4.

6. Cases of diversification by a farmer with business experience

Many cases described before in this chapter were the cases that the key persons were not farmers. Usually, farmers are focusing only growing vegetables or fruits as a craft-person/

closed. The farmers on pineapple lost their job as a result.

Figure 4. Integration of value chain by retailer.

past.

Yaeyama islands.

At that time, the annual sales of the grocery were so good and reached up to over 1 billion yen (around 1 million US dollar) by only two employees, Ms. Mariko Tomita, leader, and Mr. Usui, sales staff. Such high sales were very unusual in comparison with most of the groceries dealing with regional products. Generally, it was very difficult for ordinary groceries to gain such high sales. One reason of their success was that they insisted to provide only excellent products that they themselves could be satisfied with the quality. Another was that they transfer the information on demand and supply between customers and farmers to create a new product fitting to consumers' preference. By the effort of Mr. Usui, farmers and consumers both got benefits on production and consumption. In this case, the retailer played a role of binding both sides.

After working for Tosa Senri, Mr. Usui initiated his own business focusing making POPs for many shops because he recognized that his capability on information transfer would be useful for many retailers.

#### 5.2. Mr. Masaharu Tamamori and Iriomote pineapple

Mr. Masaharu Tamamori was a vice president of the tourism enterprise named Yaeyama Tourism Cooperation. The main business of the enterprise was operating a ferryboat among many islands called Yaeyama islands. But they also managed many other businesses such as operating shuttle bus, taxi, hotels, super market, and so forth in region. Because everyone should collaborate with each other in an island, a small community, the enterprise also should be involved in many kinds of businesses regarding the daily lives of islanders, including cultural events such as summer festival, collaborative activities of cleaning public spaces, and so forth.

In the past, the main industries of Iriomote island were growing sugarcane and pineapple. The farmers sold pineapples to the processed food factory at the price of only 25 yen in the past,

Figure 4. Integration of value chain by retailer.

vegetables to this grocery, and Senri was the name of the place where the grocery was located and the consumers' living area. As indicated in the name of the shop, the owner's policy was bridging consumers and framers. So that, in this grocery, there were amount of POPs (point of purchase advertisings), which describe and explain the details of product items, such as where is the place of production, who is a farmer produced the product, what is a special characteristics of the product, how to cook it, and so forth. Those POPs were written by Mr. Usui's hand directly. To collect the information for POPs, he often visited the farmers' places and asked them directly by sometimes staying over in the farmers' houses. Also, at that opportunity, he transferred the consumers' information to the framers, such as what was the reaction of the consumers, what they said about the products, and so forth. For that purpose, he always chatted with the customers in the grocery and asked them about their opinion, satisfaction, impression, and request for the products. That is, Mr. Usui played a role of exchanging/ transferring information and bridging between farmers and consumers. On the surface, the business of this grocery was selling fruits and vegetables. However, their business had an aspect of information service. Their manner of transferring information depended not on information technology like Internet but on human power, somewhat old-fashioned style method. However, it was so good to transfer the detailed information from human to human, rather than the transferring by Internet or some other IT methods. By using human network

At that time, the annual sales of the grocery were so good and reached up to over 1 billion yen (around 1 million US dollar) by only two employees, Ms. Mariko Tomita, leader, and Mr. Usui, sales staff. Such high sales were very unusual in comparison with most of the groceries dealing with regional products. Generally, it was very difficult for ordinary groceries to gain such high sales. One reason of their success was that they insisted to provide only excellent products that they themselves could be satisfied with the quality. Another was that they transfer the information on demand and supply between customers and farmers to create a new product fitting to consumers' preference. By the effort of Mr. Usui, farmers and consumers both got benefits on production and consumption. In this case, the retailer played a role of binding both sides. After working for Tosa Senri, Mr. Usui initiated his own business focusing making POPs for many shops because he recognized that his capability on information transfer would be useful

Mr. Masaharu Tamamori was a vice president of the tourism enterprise named Yaeyama Tourism Cooperation. The main business of the enterprise was operating a ferryboat among many islands called Yaeyama islands. But they also managed many other businesses such as operating shuttle bus, taxi, hotels, super market, and so forth in region. Because everyone should collaborate with each other in an island, a small community, the enterprise also should be involved in many kinds of businesses regarding the daily lives of islanders, including cultural events such as

In the past, the main industries of Iriomote island were growing sugarcane and pineapple. The farmers sold pineapples to the processed food factory at the price of only 25 yen in the past,

summer festival, collaborative activities of cleaning public spaces, and so forth.

transferring, their information was very deep, detailed, and sensitive.

5.2. Mr. Masaharu Tamamori and Iriomote pineapple

for many retailers.

90 Agricultural Value Chain

they mentioned. However, by globalization, the lower price pineapple made in Taiwan and Vietnam surpassed their products in the market, and the factory of Japanese pineapple was closed. The farmers on pineapple lost their job as a result.

Mr. Tamamori, a younger member of the board of trade of the island at that time, watched the distress of the farmers and made up mind to support them by selling their pineapple. He ran about all over nation to promote the pineapples of Iriomote. He went to many railway stations and sang a traditional song of Iriomote with ethnic instrument to appeal that Iriomote was a peaceful island with beautiful nature. After over 10 years' effort of promotion, Iriomote pineapple got popularity among Japanese people and many sight-seeing tourists tended to purchase it with a higher price of several hundred yen, over 10 times that for the factory in the past.

Nowadays, the proliferation of Internet and delivery system accelerated the business of Iriomote pineapple, so that Iriomote pineapple became one of the famous souvenirs of Yaeyama islands.

In this case, the relationship between farmers and the key persons was very tight. In the small community like an island, every one should collaborate with each other for survival. The binding among islanders was so strong that everyone has a strong passion for contributing to island based on their solidarity. In that case, if the key person has a capability of business management, he/she can contribute to build an effective integration of agriculture value chain.

The two cases described here have the same characteristics, tight binding between farmers and retailers and also close communication between farmers and consumers through the medium of retailers. The realized integration of food industry is schematically indicated in Figure 4.

### 6. Cases of diversification by a farmer with business experience

Many cases described before in this chapter were the cases that the key persons were not farmers. Usually, farmers are focusing only growing vegetables or fruits as a craft-person/ specialist; therefore, they are not good at business/sales. Mostly, they are lack of knowledge and know-how on business or sales. The case introduced here is a curious case that a key person as a farmer, but with business experience though his past working experience, plays a role for activating farm. The farm was re-organized as a corporation by him. The key person induced many modernizing devices to this farm and advanced their business as follows.

7. Analysis on KFS and discussion

large capitalization will be a threat in business.

rized as follows.

reduction

stood in this aspect.

in new business style.

To analyze Key Factor of Success (KFS) of the cases presented in this chapter, the common elements in the cases particularly focused on character/personality of key persons are summa-

Agricultural Diversification in Japan http://dx.doi.org/10.5772/intechopen.73192 93

1. In every case, the key person had a strong entrepreneurship and capability of business management. Usually the farmers are not good at business itself because of their specialty and mentality. In that sense, the key persons who are good at business management can contribute to actual integration of value chain or re-allocation of farmers' assets/resources

2. In every case, the excellent strategies of advertisement, marketing promotion, and branding are common elements for inducing their business success. Because most of the poor regions are lack of resources, branding is an effective manner to lift up their business. 3. In the most of the cases, the market size of their products was not so large that large competitive enterprises will not penetrate the market to enlarge their business. If the market is so large, cost-reduction, and price-down by scale-merit of large enterprises with

4. In every case, the key person had a strong feeling of contributing to the regional community. Particularly, the case of Kochi Ice indicates that the kindness of local people made an important role for forming the personality and the business policy of the key person. Social capital as solidarity, trust, credibility, and hometown feeling in region is said to be essential to grow entrepreneurs with strong mission for contributing regional community [6–11]. Because agriculture industry is commonly strongly linked to regional community, improv-

ing social capital in region is significant to advance agriculture by diversification.

generally, there are two directions of construction of industry as follows.

The common factors mentioned in 1–3 are understandable by the following tendency. That is,

a. Dividing value chain and horizontal collaboration for enlarging scale of industry for cost

b. Binding value chain and vertical integration for enhancing brand value in niche market

Emancipation of farmland and forming agricultural cooperatives by the policies right after the Second World War were executed for the purpose of activating degraded food industries in Japan, so that the policies were thought to be based on the above-mentioned direction a.

In contrast, the policy of agricultural diversification is proposed for the purpose of increasing profit of farmers by branding in niche market, so that the policy is rather thought to be based on the above-mentioned direction b. The common elements mentioned in 1–3 could be under-

One of the implications induced from the case analysis is that successful key persons for agricultural diversification have strong entrepreneurship, capability of business management, passion and mission for contributing to regional community, and tight relationship with regional community. Although MAFF promoted the policy of diversification, the reforming

### 6.1. Mr. Yuji Nakamura and his global business on lily bulb

Mr. Yuji Nakamura was originally working for a certain life insurance enterprise before entering to his fathers' farm named Nakamura Farm. Nakamura Farm was founded in 1955 by his father, who was originally a high school teacher majoring biology. His father was much keen on flowers, particularly on lily. He launched his business of producing lily bulb after long time researching growing technology of lily bulb.

In 1990, Mr. Yuji Nakamura succeeded his fathers' business and established an enterprise organizing Nakamura Farm because of bad health condition of his father. He initiated global business on lily bulb by utilizing his capability and knowledge on modernized business.

One excellent idea was that they initiated lily bulb business in winter by carrying bulbs by refrigerating container from other countries in the Southern Hemi sphere such as Chili, New Zealand, and so forth. Usually lily cannot be grown in cold circumstance like winter, so that there was no supply of lily bulb in winter. But they grew lily bulbs in hot circumstance in the Southern Hemi sphere and brought them to Japan by using refrigerating container and defrosted them by their original technology. By this device, they could occupy winter market of lily bulb in Japan.

They positively learned many things from Netherlands with advanced technology on flowers and imported lily bulbs and some other flowers' bulbs from abroad. They also built greenhouses controlled by computer to research the best growing conditions for lily flowers. They sold lily bulbs with precious information/data on how to grow lily flowers, obtained through their research in greenhouses. It was a good service for customer farmers who would grow lily flowers by purchasing lily bulbs from them in order to sell the grown flowers to flower market.

Currently, their annual sales reached over 1.7 billion yen (around 17 million US dollar) by only 16 employees. Nakamura Farm is so popular for job-hunting students that over one hundred students applied for only one opportunity of recruit.

Nakamura Farm is also highly respecting relationship with regional community because their business and daily lives are strongly bound with regional community. They held a follower festival once a year to express appreciation for regional community. They have also many social activities collaborating with regional schools.

In this case, the key person in the side of farming had strong passion to contribute to regional community, and he had also capability of modernized business management. This is somewhat a rare case in current status in Japan, but the number of the persons like Mr. Nakamura is getting increased gradually. The effort of agricultural diversification will be much more fruitful in the future.

### 7. Analysis on KFS and discussion

specialist; therefore, they are not good at business/sales. Mostly, they are lack of knowledge and know-how on business or sales. The case introduced here is a curious case that a key person as a farmer, but with business experience though his past working experience, plays a role for activating farm. The farm was re-organized as a corporation by him. The key person induced many modernizing devices to this farm and advanced their business as follows.

Mr. Yuji Nakamura was originally working for a certain life insurance enterprise before entering to his fathers' farm named Nakamura Farm. Nakamura Farm was founded in 1955 by his father, who was originally a high school teacher majoring biology. His father was much keen on flowers, particularly on lily. He launched his business of producing lily bulb after long

In 1990, Mr. Yuji Nakamura succeeded his fathers' business and established an enterprise organizing Nakamura Farm because of bad health condition of his father. He initiated global business on lily bulb by utilizing his capability and knowledge on modernized business.

One excellent idea was that they initiated lily bulb business in winter by carrying bulbs by refrigerating container from other countries in the Southern Hemi sphere such as Chili, New Zealand, and so forth. Usually lily cannot be grown in cold circumstance like winter, so that there was no supply of lily bulb in winter. But they grew lily bulbs in hot circumstance in the Southern Hemi sphere and brought them to Japan by using refrigerating container and defrosted them by their original technology. By this device, they could occupy winter market

They positively learned many things from Netherlands with advanced technology on flowers and imported lily bulbs and some other flowers' bulbs from abroad. They also built greenhouses controlled by computer to research the best growing conditions for lily flowers. They sold lily bulbs with precious information/data on how to grow lily flowers, obtained through their research in greenhouses. It was a good service for customer farmers who would grow lily flowers by purchasing lily bulbs from them in order to sell the grown flowers to flower

Currently, their annual sales reached over 1.7 billion yen (around 17 million US dollar) by only 16 employees. Nakamura Farm is so popular for job-hunting students that over one hundred

Nakamura Farm is also highly respecting relationship with regional community because their business and daily lives are strongly bound with regional community. They held a follower festival once a year to express appreciation for regional community. They have also many

In this case, the key person in the side of farming had strong passion to contribute to regional community, and he had also capability of modernized business management. This is somewhat a rare case in current status in Japan, but the number of the persons like Mr. Nakamura is getting increased gradually. The effort of agricultural diversification will be much more fruitful

6.1. Mr. Yuji Nakamura and his global business on lily bulb

time researching growing technology of lily bulb.

students applied for only one opportunity of recruit.

social activities collaborating with regional schools.

of lily bulb in Japan.

92 Agricultural Value Chain

market.

in the future.

To analyze Key Factor of Success (KFS) of the cases presented in this chapter, the common elements in the cases particularly focused on character/personality of key persons are summarized as follows.


The common factors mentioned in 1–3 are understandable by the following tendency. That is, generally, there are two directions of construction of industry as follows.


Emancipation of farmland and forming agricultural cooperatives by the policies right after the Second World War were executed for the purpose of activating degraded food industries in Japan, so that the policies were thought to be based on the above-mentioned direction a.

In contrast, the policy of agricultural diversification is proposed for the purpose of increasing profit of farmers by branding in niche market, so that the policy is rather thought to be based on the above-mentioned direction b. The common elements mentioned in 1–3 could be understood in this aspect.

One of the implications induced from the case analysis is that successful key persons for agricultural diversification have strong entrepreneurship, capability of business management, passion and mission for contributing to regional community, and tight relationship with regional community. Although MAFF promoted the policy of diversification, the reforming

8. Conclusion

capability of organizing other value chain stages.

business by realizing agricultural diversification.

Acknowledgements

Author details

Makoto Hirano

resource should be reconsidered for the future of agriculture.

capital of region is a clue for sustainable development of powerless region.

play a complementary role for encouraging Japanese contemporary agriculture.

described in this chapter. This work strongly owes their kind cooperation.

Address all correspondence to: hirano-makoto@fukuchiyama.ac.jp

The University of Fukuchiyama, Kyoto, Japan

To overcome the issues of low profitability and mismatching to market demand, integration of agriculture value chain, called as agricultural diversification, has been progressed in Japan. The policy of agricultural diversification was proposed by the Ministry of Agriculture, Forestry and Fishery (MAFF) in Japan, but the execution of the policy needs effort and collaboration of many other people except farmers, because the conventional farmers are sometimes lack of

Agricultural Diversification in Japan http://dx.doi.org/10.5772/intechopen.73192 95

Some aggressive key persons as brokers, processed food manufacturers, and retailers are very helpful for establishing profitable agriculture when they collaborate with regional farmers. This chapter presented totally seven cases of successful restructuring agricultural value chain. In every case, the key person with strong entrepreneurship, business capability, and passion/ mission for contributing regional community played an important role to establish successful

One of the implications induced from the case analysis is that the activities of those kinds of key persons are essential in the real reforming of industries. The significance of human

Another implication is that social capital of region is important to grow key persons with entrepreneurship, collaborative with farmers and to return profits to farmers and regional community. In that sense, realizing a kind of circulation of intangible asset such as social

The policy of agricultural diversification might not be effective for all kinds of fields of agriculture industry. The policy would be effective for increasing profit of farmers in some niche market but not in major market fields with scale of merit. However, the policy would

The author would like to express sincere appreciation to the key persons of each business

Figure 5. Circulation of intangible asset in region.

social system to support the policy is not enough for realizing the policy. The activities of those kinds of key persons are essential in the real reforming of industries. The significance of human resource should be re-considered for the future of agriculture.

The common elements mentioned in 4 are thought to be indicating a kind of circulation of social capital in region as intangible asset. As schematically shown in Figure 5, social capital in region grows entrepreneurs with passion/mission for contributing regional community, and such entrepreneurs play a role for business success by integrating value chain, and the success of the agricultural diversification produce profits returning to the farmers in region.

In this section, many successful cases were introduced; however, of course, there were many failures in the real industry. It is often observed that, even if there is an aggressive entrepreneur for food industry in any position, he/she could not be successful in establishing effective integration of value chain without collaboration with farmers. In any success cases, the tight linkage between farmers and entrepreneur was essential for establishing business model. In that sense, social capital in the relationship between regional community and entrepreneur is though be a kind of potential asset to advance industry/society. It will be increased through the circulation of asset, indicated in Figure 5, in the industry; therefore, it is inferred that we could grow asset/equity in society.

Another implication obtained here is that this kind of circulation of intangible asset would be significant in term of realizing sustainable development of regions. The businesses described in this chapter will not be adoptable for all kinds of agriculture fields. The agricultural diversification strategy would be effective only in some niche markets. However, the circulation of intangible asset in these businesses may be a clue to realize sustainable development of powerless regions without amount of resources and tangible asset.

### 8. Conclusion

To overcome the issues of low profitability and mismatching to market demand, integration of agriculture value chain, called as agricultural diversification, has been progressed in Japan. The policy of agricultural diversification was proposed by the Ministry of Agriculture, Forestry and Fishery (MAFF) in Japan, but the execution of the policy needs effort and collaboration of many other people except farmers, because the conventional farmers are sometimes lack of capability of organizing other value chain stages.

Some aggressive key persons as brokers, processed food manufacturers, and retailers are very helpful for establishing profitable agriculture when they collaborate with regional farmers. This chapter presented totally seven cases of successful restructuring agricultural value chain. In every case, the key person with strong entrepreneurship, business capability, and passion/ mission for contributing regional community played an important role to establish successful business by realizing agricultural diversification.

One of the implications induced from the case analysis is that the activities of those kinds of key persons are essential in the real reforming of industries. The significance of human resource should be reconsidered for the future of agriculture.

Another implication is that social capital of region is important to grow key persons with entrepreneurship, collaborative with farmers and to return profits to farmers and regional community. In that sense, realizing a kind of circulation of intangible asset such as social capital of region is a clue for sustainable development of powerless region.

The policy of agricultural diversification might not be effective for all kinds of fields of agriculture industry. The policy would be effective for increasing profit of farmers in some niche market but not in major market fields with scale of merit. However, the policy would play a complementary role for encouraging Japanese contemporary agriculture.

### Acknowledgements

social system to support the policy is not enough for realizing the policy. The activities of those kinds of key persons are essential in the real reforming of industries. The significance of human

The common elements mentioned in 4 are thought to be indicating a kind of circulation of social capital in region as intangible asset. As schematically shown in Figure 5, social capital in region grows entrepreneurs with passion/mission for contributing regional community, and such entrepreneurs play a role for business success by integrating value chain, and the success

In this section, many successful cases were introduced; however, of course, there were many failures in the real industry. It is often observed that, even if there is an aggressive entrepreneur for food industry in any position, he/she could not be successful in establishing effective integration of value chain without collaboration with farmers. In any success cases, the tight linkage between farmers and entrepreneur was essential for establishing business model. In that sense, social capital in the relationship between regional community and entrepreneur is though be a kind of potential asset to advance industry/society. It will be increased through the circulation of asset, indicated in Figure 5, in the industry; therefore, it is inferred that we could

Another implication obtained here is that this kind of circulation of intangible asset would be significant in term of realizing sustainable development of regions. The businesses described in this chapter will not be adoptable for all kinds of agriculture fields. The agricultural diversification strategy would be effective only in some niche markets. However, the circulation of intangible asset in these businesses may be a clue to realize sustainable development of powerless

of the agricultural diversification produce profits returning to the farmers in region.

resource should be re-considered for the future of agriculture.

Figure 5. Circulation of intangible asset in region.

94 Agricultural Value Chain

regions without amount of resources and tangible asset.

grow asset/equity in society.

The author would like to express sincere appreciation to the key persons of each business described in this chapter. This work strongly owes their kind cooperation.

### Author details

Makoto Hirano

Address all correspondence to: hirano-makoto@fukuchiyama.ac.jp

The University of Fukuchiyama, Kyoto, Japan

### References

[1] Cook ML. The future of U.S. agricultural cooperatives: A neo-institutional approach. American Agricultural Economics. 1995;77(5):1153-1159

**Section 3**

**AVC of Dairy Products, Beans, and Grains**


**AVC of Dairy Products, Beans, and Grains**

References

96 Agricultural Value Chain

Japan; 1958

[1] Cook ML. The future of U.S. agricultural cooperatives: A neo-institutional approach.

[2] Koyama R, Kobayashi K. Characteristics of Japanese Agricultural Cooperatives with special reference to institution and members' attitudes. Journal of Commerce, Economics and

[3] Agricultural Cooperative Division, Agricultural and Forestry Economic Bureau Ministry of Agriculture and Forestry. Statistical Abstracts of Agricultural Cooperatives Japan. Japan: Agricultural and Forestry Economic Bureau Ministry of Agriculture and Forestry

[4] Hirano M. Regional Development through Ecological Businesses: Unique Cases in Japa-

[5] Hirano M. A role of entrepreneur for innovating regional agriculture: Through a case of Japanese Ice-Cream firm. In: The 17th Uddevalla Symposium; Uddevalla; 2014

[6] Bauernschuster S, Falck O, Heblich S. Social capital access and entrepreneurship. Journal

[7] Davidsson P, Honing B. The role of social and human capital among nascent entrepre-

[8] Doh S, Zolnik EJ. Social capital and entrepreneurship: An exploratory analysis. African

[9] Liao J, Welsch H. Roles of social capital in venture creation: Key dimensions and research

[10] Westlund H. Multidimensional entrepreneurship: theoretical considerations and Swedish empirics. In: Proceedings of the 50th Anniversary Congress of the European Regional

[11] Westlund H, Larsson JP, Olsson AR. Start-ups and local entrepreneurial social capital in

implications. Journal of Small Business Management. 2005;43(4):345-362

the municipalities of Sweden. Regional Studies. 2014;48(6):974-994

American Agricultural Economics. 1995;77(5):1153-1159

Economic History. 2007;75(4):33-48

nese Rural Regions. London: Routledge; 2013

of Economic Behavior & Organization. 2010;76:821-833

neurs. Journal of Business Venturing. 2003;18:301-331

Journal of Business Management. 2011;5(12):4961-4975

Science Association; August 2010; Sweden

**Chapter 6**

**Provisional chapter**

**Dairy Value Chain In Vietnam: Evidences from Bavi**

Dairy farming, in Vietnam, existed in the early twentieth century thanks to the favorable natural advantage. During many difficult periods, the Vietnam's dairy industry has developed constantly and contributed significantly to the food needs ensuring. However, Vietnam's dairy industry still could not satisfy the domestic milk demand. Retail milk prices in Vietnam are very high, whereas the price of milk sold by the dairy farmers is very low. The cause stems from the control of dairy companies in the quantity and quality of milk. Moreover, that control caused an imbalance in the profits and benefits of each actor in the dairy value chain. This study, hence, finds out the distribution of benefits, costs, value-added among the actors, and problems in the practical management in dairy

**Keywords:** dairy value chain, Vietnam dairy products, Vietnam value chain, upgrading

For each different research, the value chain will be interpreted in many different ways. According to Khoi [1, 2], "Chain" emphasizes vertical order of the activities leading to the distribution, consumption, and maintenance of goods and services. The chain contains dynamic

The value chain concept was introduced in 1985 by Porter [3] in "Competitive Advantage: Creating and Sustaining Superior Performance." In his research, the definition of the value chain is understood as "the idea of the value chain is based on the process view of organizations, the

milk value chain with specific focus on Bavi as the case study.

**Dairy Value Chain In Vietnam: Evidences from Bavi**

DOI: 10.5772/intechopen.69450

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution,

© 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use,

distribution, and reproduction in any medium, provided the original work is properly cited.

and reproduction in any medium, provided the original work is properly cited.

**Area**

**Area**

Nguyen Viet Khoi, Hoang Thi Hai Yen, Tong Van Khai, Nguyen Tien Duc and

http://dx.doi.org/10.5772/intechopen.69450

value chain, Bavi Vietnam dairy

characters in the sense that repeated in an order.

Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

Nguyen Viet Khoi, Hoang Thi Hai Yen, Tong Van Khai, Nguyen Tien Duc and Dang Thi

Dang Thi Phuong Hoa

**Abstract**

**1. Introduction**

Phuong Hoa

### **Dairy Value Chain In Vietnam: Evidences from Bavi Area Dairy Value Chain In Vietnam: Evidences from Bavi Area**

DOI: 10.5772/intechopen.69450

Nguyen Viet Khoi, Hoang Thi Hai Yen, Tong Van Khai, Nguyen Tien Duc and Dang Thi Phuong Hoa Nguyen Viet Khoi, Hoang Thi Hai Yen, Tong Van Khai, Nguyen Tien Duc and Dang Thi Phuong Hoa

Additional information is available at the end of the chapter Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.69450

#### **Abstract**

Dairy farming, in Vietnam, existed in the early twentieth century thanks to the favorable natural advantage. During many difficult periods, the Vietnam's dairy industry has developed constantly and contributed significantly to the food needs ensuring. However, Vietnam's dairy industry still could not satisfy the domestic milk demand. Retail milk prices in Vietnam are very high, whereas the price of milk sold by the dairy farmers is very low. The cause stems from the control of dairy companies in the quantity and quality of milk. Moreover, that control caused an imbalance in the profits and benefits of each actor in the dairy value chain. This study, hence, finds out the distribution of benefits, costs, value-added among the actors, and problems in the practical management in dairy milk value chain with specific focus on Bavi as the case study.

**Keywords:** dairy value chain, Vietnam dairy products, Vietnam value chain, upgrading value chain, Bavi Vietnam dairy

### **1. Introduction**

For each different research, the value chain will be interpreted in many different ways. According to Khoi [1, 2], "Chain" emphasizes vertical order of the activities leading to the distribution, consumption, and maintenance of goods and services. The chain contains dynamic characters in the sense that repeated in an order.

The value chain concept was introduced in 1985 by Porter [3] in "Competitive Advantage: Creating and Sustaining Superior Performance." In his research, the definition of the value chain is understood as "the idea of the value chain is based on the process view of organizations, the

idea of seeing a manufacturing (or service) organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes and outputs involve the acquisition and consumption of resources—money, labor, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits." According to Porter, a basic value chain consists of nine stages and is divided into the main activities in the chain and the complementary activities. The first major activity in the inputs supply is the operation reception and storage of raw materials for an industry or a certain field. Next, the production activity directly relates to the process of creating the greatest value-added of products such as processing of raw materials into the final product. Logistics activity will be responsible for receiving the final products, storing them in warehouse, and distributing them to dealers, stores. Marketing activity and promotional media promote the product to consumers. Finally, service or after-sales activity relates to the customer care in order to maintain customers or enhance the value of the product. The complementary activities, while not directly, create the value-added of products, but they are important activities to support main activities to create value for products and for every link in the chain.

general and each actor in chain. Thanks to Porter [3] and Kaplinsky and Morris [4], the concept of "value chain" and the method to calculate value-added and profit of actors in the dairy value chain are created. Lowe and Giraffe (2009) showed a good view of the dairy value chain in the USA—an advanced country in milk production. The value chain includes four main actors: inputs, production, process and distribution, and marketing. In the USA, high technology is applied in most parts. There are concentrated steps in nurturing, harvesting, collecting and processing milk. Every step is carefully controlled and managed. The special thing in the US dairy industry lies in the veterinary system. The result of the study is that the companies downstream from the dairy producer category, milk and dairy processors, include large, diversified companies despite being diversified well beyond milk and dairy products, nonetheless include companies that have higher shares of the dairy market than the largest producer cooperative. In the "*dairy value chain in Kenya*" (August 2008), a report by Techno Serve Kenya, East Africa Dairy Development mentioned each of the actor's situation in the dairy value chain in that country. In addition, the study also referred to the logistics operations in parallel in the series. By means of descriptive statistics, the study showed the limitations and the dominant presence of the value chain. Research also offered solutions and proposals to overcome the difficulties. Achchuthan and Kajananthan (2012) found out the main factors that have influence on the dairy sector of Sri Lanka. This study also discovered the strengths and weaknesses of each actor in the dairy value chain; discovered the strong, weakness, opportunities and even threats of each actor; to suggest actors in the dairy value chain to strengthening the dairy sector. About the strengths, the author pointed out that the farmers are being provided the financial assistance by some local companies to widen their farms and increase the scale of dairy milk production. The farmers are also trained about how to use modern equipment to test the quality of milk and educated about marketing strategy to develop their milk brand. Also, in Sri Lanka's agriculture sector, there is always abundant labors with low labor cost to expand their business. On the other side, the dairy farmers also have many difficulties in their business such as they do not have the educational background to plan the dairy farming in the large scale; further cooperative society in the Karachi division has not enough technological facilities to preserve the pure milk. And they also do not have

Dairy Value Chain In Vietnam: Evidences from Bavi Area http://dx.doi.org/10.5772/intechopen.69450 101

the value-added strategies like milk toffee, ice cream, yoghurt in the large scale, etc.

Besides, in Vietnam, *Tran Huy Cuong and Bui Thi Nga* (2012) analyzed the actors in the value chain of the fresh milk in Vietnam. This research used not only quantitative but also qualitative approaches in the case of fresh milk products in the northern area of Vietnam. The research illustrated the four main actors in the dairy milk value chain in Vietnam: (1) the farmer; (2) collector; (3) processing firms and (4) distribution. The dairy plants play an important role and have right to make decisions. In other word, the dairy plants (processing firms) become the main actor, which receives most of the profit. The farmers who invest lots of capital and time to raise cow only receive a small proportion of the profit. This research gives a deeper vision on what is going on in the fresh milk production and distribution in Vietnam. This is one of the very few researches in Vietnam on the value chain of the dairy industry. Agreeing with the approach of some study, the study by Khoi [5] has provided quite detailed analysis on comprehensive value chain of Vietnam dairy industry to produce the value-added level in the value chain actors of Vietnam's dairy. This is a reference to help

Approaching the theory about the value chain in the dairy milk sector, the value chain of dairy milk could be understood as a combination of several activities from the producers to the final consumers. The combination contains the farmer (growing dairy cows and collecting milk), the processors and the seller. These actors directly participate in the value chain; their relationships depend on the flow of good, the flow of information and the cash flow. Besides, activities of this value chain were influenced by many factors such as supply chain system, marketing, legal system, and supply and demand of goods. Therefore, a typical value chain of dairy milk contains production, transport, chilling and bulking, processing, transport or distribution and retail.

As an agriculture country, dairy farming in Vietnam existed in the early twentieth century due to many favorable natural advantages. Since then, Vietnam's dairy industry has developed constantly and contributed significantly to the food needs ensuring. The demand for milk in Vietnam increased gradually in general, and the demand for raw milk increased by 61% in particular. Fresh milk production has increased by 15.6% compared with 2010 from 306.7 to 732.2 thousand tons. However, Vietnam's dairy industry still could not satisfy the domestic milk demand. And the milk retail prices in Vietnam are very high, whereas the prices of fresh milk provided by the dairy farmers are very low. This paradox stems from the overwhelming control of dairy companies in both the quantity and quality of the milk input. That mechanism caused an imbalance in the profits and benefits among every actor in the dairy value chain. Hence, this chapter will find out the distribution of benefits, costs and value-added among the actors, and point out the problems in management system of this dairy value chain in Vietnam.

### **2. Dairy value chain in Vietnam: evidences from the case of Bavi**

### **2.1. Literature review**

The literature is abundant with the works that address the value chain of dairy milk. These researches pointed out the important results in developing the value chain of dairy milk in general and each actor in chain. Thanks to Porter [3] and Kaplinsky and Morris [4], the concept of "value chain" and the method to calculate value-added and profit of actors in the dairy value chain are created. Lowe and Giraffe (2009) showed a good view of the dairy value chain in the USA—an advanced country in milk production. The value chain includes four main actors: inputs, production, process and distribution, and marketing. In the USA, high technology is applied in most parts. There are concentrated steps in nurturing, harvesting, collecting and processing milk. Every step is carefully controlled and managed. The special thing in the US dairy industry lies in the veterinary system. The result of the study is that the companies downstream from the dairy producer category, milk and dairy processors, include large, diversified companies despite being diversified well beyond milk and dairy products, nonetheless include companies that have higher shares of the dairy market than the largest producer cooperative. In the "*dairy value chain in Kenya*" (August 2008), a report by Techno Serve Kenya, East Africa Dairy Development mentioned each of the actor's situation in the dairy value chain in that country. In addition, the study also referred to the logistics operations in parallel in the series. By means of descriptive statistics, the study showed the limitations and the dominant presence of the value chain. Research also offered solutions and proposals to overcome the difficulties. Achchuthan and Kajananthan (2012) found out the main factors that have influence on the dairy sector of Sri Lanka. This study also discovered the strengths and weaknesses of each actor in the dairy value chain; discovered the strong, weakness, opportunities and even threats of each actor; to suggest actors in the dairy value chain to strengthening the dairy sector. About the strengths, the author pointed out that the farmers are being provided the financial assistance by some local companies to widen their farms and increase the scale of dairy milk production. The farmers are also trained about how to use modern equipment to test the quality of milk and educated about marketing strategy to develop their milk brand. Also, in Sri Lanka's agriculture sector, there is always abundant labors with low labor cost to expand their business. On the other side, the dairy farmers also have many difficulties in their business such as they do not have the educational background to plan the dairy farming in the large scale; further cooperative society in the Karachi division has not enough technological facilities to preserve the pure milk. And they also do not have the value-added strategies like milk toffee, ice cream, yoghurt in the large scale, etc.

idea of seeing a manufacturing (or service) organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes and outputs involve the acquisition and consumption of resources—money, labor, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits." According to Porter, a basic value chain consists of nine stages and is divided into the main activities in the chain and the complementary activities. The first major activity in the inputs supply is the operation reception and storage of raw materials for an industry or a certain field. Next, the production activity directly relates to the process of creating the greatest value-added of products such as processing of raw materials into the final product. Logistics activity will be responsible for receiving the final products, storing them in warehouse, and distributing them to dealers, stores. Marketing activity and promotional media promote the product to consumers. Finally, service or after-sales activity relates to the customer care in order to maintain customers or enhance the value of the product. The complementary activities, while not directly, create the value-added of products, but they are important activities to support main activities to create value for products and for every link in the chain.

Approaching the theory about the value chain in the dairy milk sector, the value chain of dairy milk could be understood as a combination of several activities from the producers to the final consumers. The combination contains the farmer (growing dairy cows and collecting milk), the processors and the seller. These actors directly participate in the value chain; their relationships depend on the flow of good, the flow of information and the cash flow. Besides, activities of this value chain were influenced by many factors such as supply chain system, marketing, legal system, and supply and demand of goods. Therefore, a typical value chain of dairy milk contains production, transport, chilling and bulking, processing, transport or distribution and retail. As an agriculture country, dairy farming in Vietnam existed in the early twentieth century due to many favorable natural advantages. Since then, Vietnam's dairy industry has developed constantly and contributed significantly to the food needs ensuring. The demand for milk in Vietnam increased gradually in general, and the demand for raw milk increased by 61% in particular. Fresh milk production has increased by 15.6% compared with 2010 from 306.7 to 732.2 thousand tons. However, Vietnam's dairy industry still could not satisfy the domestic milk demand. And the milk retail prices in Vietnam are very high, whereas the prices of fresh milk provided by the dairy farmers are very low. This paradox stems from the overwhelming control of dairy companies in both the quantity and quality of the milk input. That mechanism caused an imbalance in the profits and benefits among every actor in the dairy value chain. Hence, this chapter will find out the distribution of benefits, costs and value-added among the actors, and point out the problems in management system of this dairy value chain in Vietnam.

**2. Dairy value chain in Vietnam: evidences from the case of Bavi**

The literature is abundant with the works that address the value chain of dairy milk. These researches pointed out the important results in developing the value chain of dairy milk in

**2.1. Literature review**

100 Agricultural Value Chain

Besides, in Vietnam, *Tran Huy Cuong and Bui Thi Nga* (2012) analyzed the actors in the value chain of the fresh milk in Vietnam. This research used not only quantitative but also qualitative approaches in the case of fresh milk products in the northern area of Vietnam. The research illustrated the four main actors in the dairy milk value chain in Vietnam: (1) the farmer; (2) collector; (3) processing firms and (4) distribution. The dairy plants play an important role and have right to make decisions. In other word, the dairy plants (processing firms) become the main actor, which receives most of the profit. The farmers who invest lots of capital and time to raise cow only receive a small proportion of the profit. This research gives a deeper vision on what is going on in the fresh milk production and distribution in Vietnam. This is one of the very few researches in Vietnam on the value chain of the dairy industry. Agreeing with the approach of some study, the study by Khoi [5] has provided quite detailed analysis on comprehensive value chain of Vietnam dairy industry to produce the value-added level in the value chain actors of Vietnam's dairy. This is a reference to help paper to get different perspectives on the development of value chains in different sectors in Vietnam. In another study of Vietnam by Khoi [6], the author gave the merger may occur in the dairy sector in Vietnam due to differences in value-added in the value chain of this sector.

### **2.2. Methodology**

A survey was carried out in Bavi, Hanoi, where a large amount of fresh milk is produced annually. The content of the survey was built before conducting in Bavi with 160 questions. The questionnaires were based on the criteria which reflect the main objectives of the paper such as the actor's profits and costs, the relationship among these actors, and the advantages and disadvantages in the dairy milk's value chain. Some part of results of the paper should be evaluated (by interview) of the relevant target groups in the value chain of dairy milk.

Data collected were aggregated and analyzed by SPSS20, Excel. The calculation of cost and profit margin of each actor in the chain will also be presented by a quantitative tool for value chain analysis.

### **2.3. Overview of the dairy sector in Vietnam**

In the last 10 year, Vietnam has witnessed the gradual growth of the milk consumption. Vietnam is not the country with long history of milk production; however, in the last few years, Vietnamese people have realized the importance of milk products and spend more on this nutria drink. The growth rate is quite high on average; nevertheless, Vietnam is still in the low milk consumption area (<30 kg/capita/year). This might be a big chance for milk producer in the near future.

consumption of fresh milk in Vietnam increased over the years, especially in the period from 2010 to 2015. In the 10 years since 2000, the number of annual milk consumption in Vietnam increased only 2.8 kg. However, in the period 2010–2015, the annual milk consumption is 5.8 kg, which is more than double amount of 2010. In the period from 2010 to 2013, the amount of milk consumed per capita per year increased only slightly due to the affecting of the melamine crisis in 2010. After recovering, from 2013 to 2015, Vietnam has witnessed the

**Lower middleincome countries**

0.81 0.77 0.70 0.54

**Middle-income countries N = 36**

Dairy Value Chain In Vietnam: Evidences from Bavi Area http://dx.doi.org/10.5772/intechopen.69450

> **High-income countries N = 44**

103

**N = 36**

Beverages and tobacco 1.73 1.13 0.92 0.67 Cereals 0.59 0.49 0.34 0.08 Meat 0.80 0.76 0.69 0.53 Dairy 0.83 0.79 0.72 0.55 Fish 0.69 0.64 0.56 0.42 Fats, oils 0.60 0.50 0.37 0.15 Fruits 0.66 0.60 0.51 0.36 Other foods 1.82 1.23 0.98 0.70

The number of dairy cow and quantity of milk production in Vietnam is increased rapidly from 2000 to 2010. From 2000 to 2004, the number of dairy cow increases steadily from 35 thousand to nearly 100 thousand heads. The reason for that is the increase in the demand of milk and the implementation of resolution 09 and decision 167, which created condition and opportunity for Vietnam's development by stimulating Vietnamese farmers to raise cows (the resolution contributed to increase the dairy herd to 100,000 milking cows and production of 300,000 tons fresh milk yearly). The decision built a production and development strategy for dairy cattle for the period 2002–2010. This strategy aimed to raise dairy cow in Vietnam including 10 provinces in the North, 5 provinces in the Central Coastal region, 4 provinces in the Central Highlands and 7 provinces in the South. In 2005 and 2006, the growth rate of the dairy cow number was only 8.7% per year; which resulted from the inefficient milk production due to the low technology. However, with the restructure of dairy program, accompany with the increasing quickly in milk demand. The number of dairy cow recovered in raised 14.9% per year from 2008 to 2010. From 2010 to 2015, the number of dairy cows increased gradually with the average of 11.73%. In 2014, Vietnam has 200,400 dairy cows. As a result, total dairy milk production in Vietnam in 2010 was 306,620 tons; it was six times higher than

significant increase from 4.0 to 9.3 kg/capita/year (**Figure 1**).

**Low-income countries N = 28**

*2.3.2. The dairy milk production*

**Table 1.** The elasticity of consuming products.

Food beverages and

tobacco

Most milk products in Vietnam are designed for under 3-year-old babies and the elder. There is a huge market for daily milk consumption and mature specialized milk. According to Khoi [1, 2] 10% of Vietnamese population in the two big cities, namely Ho Chi Minh City and Hanoi, has been consuming 78% of dairy products. These data show an inequality in the consumption of milk products.

### *2.3.1. Dairy milk consumption*

Gerosa and Skoet (2012) investigated 144 countries about the consumption of goods. They released an elasticity to show the range of demand. The income elasticity of expenditure estimates the percentage increase in expenditure on the food category resulting from a 1% increase in income. According to **Table 1**, we have the elasticity of the dairy milk product.

The income elasticity of expenditure estimates the percentage increase in expenditure on the food category resulting from a 1% increase in income. The numbers reported are simple unweighted averages of estimates for the individual countries included in each income group. Vietnam—a lower middle-income countries have the relatively high dairy elasticity 0.79, which might be a reason for the fast growth of the milk industry in Vietnam.

The practical situation in dairy milk industry in Vietnam was unacceptable with Gerosa and Skoet's research (2012). Along with the increase in the living standard, the amount of annual


**Table 1.** The elasticity of consuming products.

paper to get different perspectives on the development of value chains in different sectors in Vietnam. In another study of Vietnam by Khoi [6], the author gave the merger may occur in the dairy sector in Vietnam due to differences in value-added in the value chain of this sector.

A survey was carried out in Bavi, Hanoi, where a large amount of fresh milk is produced annually. The content of the survey was built before conducting in Bavi with 160 questions. The questionnaires were based on the criteria which reflect the main objectives of the paper such as the actor's profits and costs, the relationship among these actors, and the advantages and disadvantages in the dairy milk's value chain. Some part of results of the paper should be

Data collected were aggregated and analyzed by SPSS20, Excel. The calculation of cost and profit margin of each actor in the chain will also be presented by a quantitative tool for value

In the last 10 year, Vietnam has witnessed the gradual growth of the milk consumption. Vietnam is not the country with long history of milk production; however, in the last few years, Vietnamese people have realized the importance of milk products and spend more on this nutria drink. The growth rate is quite high on average; nevertheless, Vietnam is still in the low milk consumption area (<30 kg/capita/year). This might be a big chance for milk producer

Most milk products in Vietnam are designed for under 3-year-old babies and the elder. There is a huge market for daily milk consumption and mature specialized milk. According to Khoi [1, 2] 10% of Vietnamese population in the two big cities, namely Ho Chi Minh City and Hanoi, has been consuming 78% of dairy products. These data show an inequality in the

Gerosa and Skoet (2012) investigated 144 countries about the consumption of goods. They released an elasticity to show the range of demand. The income elasticity of expenditure estimates the percentage increase in expenditure on the food category resulting from a 1% increase in income. According to **Table 1**, we have the elasticity of the dairy milk product.

The income elasticity of expenditure estimates the percentage increase in expenditure on the food category resulting from a 1% increase in income. The numbers reported are simple unweighted averages of estimates for the individual countries included in each income group. Vietnam—a lower middle-income countries have the relatively high dairy elasticity

The practical situation in dairy milk industry in Vietnam was unacceptable with Gerosa and Skoet's research (2012). Along with the increase in the living standard, the amount of annual

0.79, which might be a reason for the fast growth of the milk industry in Vietnam.

evaluated (by interview) of the relevant target groups in the value chain of dairy milk.

**2.2. Methodology**

102 Agricultural Value Chain

chain analysis.

in the near future.

consumption of milk products.

*2.3.1. Dairy milk consumption*

**2.3. Overview of the dairy sector in Vietnam**

consumption of fresh milk in Vietnam increased over the years, especially in the period from 2010 to 2015. In the 10 years since 2000, the number of annual milk consumption in Vietnam increased only 2.8 kg. However, in the period 2010–2015, the annual milk consumption is 5.8 kg, which is more than double amount of 2010. In the period from 2010 to 2013, the amount of milk consumed per capita per year increased only slightly due to the affecting of the melamine crisis in 2010. After recovering, from 2013 to 2015, Vietnam has witnessed the significant increase from 4.0 to 9.3 kg/capita/year (**Figure 1**).

#### *2.3.2. The dairy milk production*

The number of dairy cow and quantity of milk production in Vietnam is increased rapidly from 2000 to 2010. From 2000 to 2004, the number of dairy cow increases steadily from 35 thousand to nearly 100 thousand heads. The reason for that is the increase in the demand of milk and the implementation of resolution 09 and decision 167, which created condition and opportunity for Vietnam's development by stimulating Vietnamese farmers to raise cows (the resolution contributed to increase the dairy herd to 100,000 milking cows and production of 300,000 tons fresh milk yearly). The decision built a production and development strategy for dairy cattle for the period 2002–2010. This strategy aimed to raise dairy cow in Vietnam including 10 provinces in the North, 5 provinces in the Central Coastal region, 4 provinces in the Central Highlands and 7 provinces in the South. In 2005 and 2006, the growth rate of the dairy cow number was only 8.7% per year; which resulted from the inefficient milk production due to the low technology. However, with the restructure of dairy program, accompany with the increasing quickly in milk demand. The number of dairy cow recovered in raised 14.9% per year from 2008 to 2010. From 2010 to 2015, the number of dairy cows increased gradually with the average of 11.73%. In 2014, Vietnam has 200,400 dairy cows. As a result, total dairy milk production in Vietnam in 2010 was 306,620 tons; it was six times higher than

and raised 41.58%. The second largest supplier is Singapore reaching 22.4 million, and increased

Dairy Value Chain In Vietnam: Evidences from Bavi Area http://dx.doi.org/10.5772/intechopen.69450 105

Generally, in the first 2 months of 2016, the amount of imported milk from other markets had

The value chain of dairy milk in Vietnam includes a lot of activities such as input supply; farming, production; bulk and cooling processing; packaging; transportation and distribution, which divided in five stages. There are many actors in the chain: A, feed, heifers machines; B, dairy men (dairy farmers); C, milk collectors; D, dairy plant; E, wholesaler, shop agents, showroom-market; F, Retailers; G, middle men (small shop, milk care shop); and H, Consumers (domestic consumers and international companies). Besides, the value chain of dairy milk was supported by other organization through projects and policies (**Figure 3**).

positive growth rates such as Denmark, France, the USA, Korea, Philippine, etc.

8.4%; followed by Australia, reached 16.7 million (data 2016)

**Figure 3.** The value chain of dairy milk in Vietnam—the function and actors.

**2.4. The dairy value chain in Vietnam**

**Figure 1.** Total fresh milk consumption in Vietnam from 2000 to 2015. Source: General statistic office of Vietnam.

the dairy milk production in 2000. From 2010 to now, the quantity of milk production has continuously increased. In 2015, Vietnam has witnessed an increase in fresh milk production by 15.6% compared with 2010. The quantity of fresh milk in Vietnam in 2015 was 723.2 thousand tons (**Figure 2**).

#### *2.3.3. The imported quantity of milk*

Due to the melamine milk crisis in the Asia region in 2008 and 2009, the number of imported milk of Vietnam had decreased suddenly in early 2010. From then to now, the quantity of milk that Vietnam imported has recovered gradually. Currently, in the end of February 2016, Vietnam's import reached to 168 items, 8 million of dairy products and increased 17.99% with last year. Vietnam imported raw milk and other milk products from 16 countries around the world, mainly from New Zealand, accounting for 35.1% of total turnover, reaching 59.3 million,

**Figure 2.** Quantity of dairy cow and milk production in Vietnam from 2000 to 2015. Source: General Statistics Office of Vietnam.

and raised 41.58%. The second largest supplier is Singapore reaching 22.4 million, and increased 8.4%; followed by Australia, reached 16.7 million (data 2016)

Generally, in the first 2 months of 2016, the amount of imported milk from other markets had positive growth rates such as Denmark, France, the USA, Korea, Philippine, etc.

### **2.4. The dairy value chain in Vietnam**

the dairy milk production in 2000. From 2010 to now, the quantity of milk production has continuously increased. In 2015, Vietnam has witnessed an increase in fresh milk production by 15.6% compared with 2010. The quantity of fresh milk in Vietnam in 2015 was 723.2 thou-

**Figure 1.** Total fresh milk consumption in Vietnam from 2000 to 2015. Source: General statistic office of Vietnam.

Due to the melamine milk crisis in the Asia region in 2008 and 2009, the number of imported milk of Vietnam had decreased suddenly in early 2010. From then to now, the quantity of milk that Vietnam imported has recovered gradually. Currently, in the end of February 2016, Vietnam's import reached to 168 items, 8 million of dairy products and increased 17.99% with last year. Vietnam imported raw milk and other milk products from 16 countries around the world, mainly from New Zealand, accounting for 35.1% of total turnover, reaching 59.3 million,

**Figure 2.** Quantity of dairy cow and milk production in Vietnam from 2000 to 2015. Source: General Statistics Office of

sand tons (**Figure 2**).

104 Agricultural Value Chain

Vietnam.

*2.3.3. The imported quantity of milk*

The value chain of dairy milk in Vietnam includes a lot of activities such as input supply; farming, production; bulk and cooling processing; packaging; transportation and distribution, which divided in five stages. There are many actors in the chain: A, feed, heifers machines; B, dairy men (dairy farmers); C, milk collectors; D, dairy plant; E, wholesaler, shop agents, showroom-market; F, Retailers; G, middle men (small shop, milk care shop); and H, Consumers (domestic consumers and international companies). Besides, the value chain of dairy milk was supported by other organization through projects and policies (**Figure 3**).

**Figure 3.** The value chain of dairy milk in Vietnam—the function and actors.

#### *2.4.1. First stage: input supply*

Dairy cows and industrial food for agriculture sector derive from domestic market and importing from the foreign. However, the importing dairy cows and food accounted for a relatively large amount. The dependence on this importing source may effect on the stability of Vietnam dairy milk. Therefore, in stage of input materials, one of the most essential tasks of Vietnam dairy milk is being prior to choose the best dairy cows.

Hanoi to Phu Tho and Vinh Phuc, where it is convenient for anyone to buy milk. The reason why there are still a considered amount of milk that was provided to retailers (**Figure 4**).

Dairy Value Chain In Vietnam: Evidences from Bavi Area http://dx.doi.org/10.5772/intechopen.69450 107

From dairy plant, most of milk products (96.7%) were distributed to the wholesaler, shop agents, showrooms, only 1.2% of those products to schools and companies and 2.1% of them to the retailers. From wholesaler, shop agents and showroom-market, these products were distributed to retailer (68%) before being sold to consumers and 32% of those products are

The survey was carried out in Bavi district with the aim to examine the production cost of dairy farmers in Bavi. With the including of family worker in the cost production, the total

**Figure 4.** The distribution in the value chain of dairy milk in Bavi. Source: Calculated by data collected, 2016.

shared out directly to the consumers.

**2.5. The cost, profit and value-added**

*2.5.1. Economic analysis of dairy farmers*

### *2.4.2. Second stage: production and farming*

This stage plays the most important role in the whole value chain of Vietnam dairy milk and it also the stage, which Vietnam still, have the huge gap with other countries. There are several reasons why Vietnam is not good at this stage. Firstly, it comes from the lack of animal food, infrastructure, technology and the support from Vietnam government. Secondly, the famers in the Vietnam's dairy value chain also lack the necessary knowledge and skills of livestock sector (dairy farming). As a result, the dairy breeding sector only meets 25% of domestic demand.

#### *2.4.3. Third stage: processing*

This stage is the combination of milk collecting, processing and packing. Presently, there are three major participants taking part in milk collecting: milk procurement companies, cooperatives and privates. Although the milk collecting companies have increased the level of milk procurement through their collecting points, however, with the participation of private in collecting dairy milk makes the price of milk is not stable. Additionally, there is still above 20% of the milk that does not meet the quality standards.

#### *2.4.4. Fourth stage: distribution*

Recently, in Vietnam, the dairy milk is distributed in two main trends: traditional channel (distributors account for over 10% profit – wholesale agents – stores – consumers) and modern channel (supermarket – consumers)

#### *2.4.5. Fifth stage: consumption*

The large of milk consumption in Vietnam shows a positive picture when the milk is one of the most important goods and it accounts for the largest market. In recently, the level of milk consumption in Vietnam market increased significantly. Only 10% of the country's population consumes 78% of dairy products. This promotes Vietnam dairy branches to develop more and more to meet different consumer needs.

In the case of Bavi, the dairy farmers buy animal feeds, cows and machines from suppliers and generate milk by their own. Dairy farmer mainly sold their raw milk to collecting centers by 97%; they keep the rest at home as food resource or provide for retailers and shops by 1 and 2%, respectively. There are many retailers and milk shops situated near highway from Hanoi to Phu Tho and Vinh Phuc, where it is convenient for anyone to buy milk. The reason why there are still a considered amount of milk that was provided to retailers (**Figure 4**).

From dairy plant, most of milk products (96.7%) were distributed to the wholesaler, shop agents, showrooms, only 1.2% of those products to schools and companies and 2.1% of them to the retailers. From wholesaler, shop agents and showroom-market, these products were distributed to retailer (68%) before being sold to consumers and 32% of those products are shared out directly to the consumers.

### **2.5. The cost, profit and value-added**

*2.4.1. First stage: input supply*

106 Agricultural Value Chain

demand.

*2.4.3. Third stage: processing*

*2.4.4. Fourth stage: distribution*

*2.4.5. Fifth stage: consumption*

ern channel (supermarket – consumers)

and more to meet different consumer needs.

*2.4.2. Second stage: production and farming*

of the milk that does not meet the quality standards.

Dairy cows and industrial food for agriculture sector derive from domestic market and importing from the foreign. However, the importing dairy cows and food accounted for a relatively large amount. The dependence on this importing source may effect on the stability of Vietnam dairy milk. Therefore, in stage of input materials, one of the most essential tasks

This stage plays the most important role in the whole value chain of Vietnam dairy milk and it also the stage, which Vietnam still, have the huge gap with other countries. There are several reasons why Vietnam is not good at this stage. Firstly, it comes from the lack of animal food, infrastructure, technology and the support from Vietnam government. Secondly, the famers in the Vietnam's dairy value chain also lack the necessary knowledge and skills of livestock sector (dairy farming). As a result, the dairy breeding sector only meets 25% of domestic

This stage is the combination of milk collecting, processing and packing. Presently, there are three major participants taking part in milk collecting: milk procurement companies, cooperatives and privates. Although the milk collecting companies have increased the level of milk procurement through their collecting points, however, with the participation of private in collecting dairy milk makes the price of milk is not stable. Additionally, there is still above 20%

Recently, in Vietnam, the dairy milk is distributed in two main trends: traditional channel (distributors account for over 10% profit – wholesale agents – stores – consumers) and mod-

The large of milk consumption in Vietnam shows a positive picture when the milk is one of the most important goods and it accounts for the largest market. In recently, the level of milk consumption in Vietnam market increased significantly. Only 10% of the country's population consumes 78% of dairy products. This promotes Vietnam dairy branches to develop more

In the case of Bavi, the dairy farmers buy animal feeds, cows and machines from suppliers and generate milk by their own. Dairy farmer mainly sold their raw milk to collecting centers by 97%; they keep the rest at home as food resource or provide for retailers and shops by 1 and 2%, respectively. There are many retailers and milk shops situated near highway from

of Vietnam dairy milk is being prior to choose the best dairy cows.

#### *2.5.1. Economic analysis of dairy farmers*

The survey was carried out in Bavi district with the aim to examine the production cost of dairy farmers in Bavi. With the including of family worker in the cost production, the total

**Figure 4.** The distribution in the value chain of dairy milk in Bavi. Source: Calculated by data collected, 2016.


*2.5.2. Economic analysis of dairy plants*

added at 7898 VND.

nies) (**Tables 4** and **5**).

Source: Calculated by data collected, 2016.

*2.5.3. Economic analysis of wholesalers*

ages the wholesalers trying to sell more and more.

GO/TR (Revenue) VND/kg 24,000

**Table 3.** Cost, profit and value-added in 1 kg milk of dairy companies.

Firstly, this chapter will not calculate the cost, profit and value-added of the collectors in Bavi. The reason is that the dairy milk chain in Bavi is different from other value chain. In this value chain, the collectors belong to dairy plant; they are not households or traders so the economic

Dairy Value Chain In Vietnam: Evidences from Bavi Area http://dx.doi.org/10.5772/intechopen.69450 109

In general, 1 kg of fresh milk is 24,000 VND. Dairy companies usually have high intermediate cost, which accounts for 46.01% of milk price with 16,102 VND. Intermediate cost contains input material, which is imported from other countries, the input milk from dairy farmers, electricity to operate dairy plant, water and other materials. The average total cost of dairy plant is 18,423 VND (78.53%). Thus, dairy companies gain the average profit of 5577 VND, which account for over 23% of total revenue. Besides, they generate the amount of value-

Wholesalers at level 1, who buy milk product directly for dairy companies; they are hired to sell product for companies. The advantage is that they do not need to buy facilities and the input products were not calculated in the intermediate cost. So that, all the input cost they have to pay is electricity and renting. The other cost is labor cost; the average wage of a worker or seller in the shop is 2,500,000 VND. In the end of month, the companies will assess the revenue of wholesaler and pay the commission for them. The commission is based on the level of revenue (revenue 10 million VND, get 10% commission; revenue 30 million VND, get 20% commission; and revenue over 50 million VND, get 30% commission). This method encour-

On the other hand, the wholesalers at levels 2 and 3 (smaller scale) buy milk products of dairy companies in the low price and sell it to retailers and consumers with higher price to get profits. In this way, wholesalers have more independence in their businesses. They also were equipped facilities by companies (this is advertising and the taking market share of compa-

Items Unit Costs Share (%)

TC (Total cost) VND/kg 18,423 52.64 IC (Income) VND/kg 16,102 46.01 VA (Value-added) VND/kg 7898 22.57 NPr (Net profit) VND/kg 5,577 15.93

analysis is added into the dairy plant's economic analysis (**Table 3**).

**Table 2.** Cost, profit and value-added of dairy farmers (including family workers).

average cost per 1 kg of milk is almost 9793.9 Vietnam dong (VND). This cost contains the cost of food, vaccine, electricity, water, labor and transportation as shown in **Table 2**. Farmers plant nappies grass, corn in their field and harvest for cows to diminish the cost of food. Despite of that saving, they still have to pay 1,300,000 VND per cow for industrial food, which accounts for 56.72% of total cost. However, the average price of 1 kg fresh milk is only 11,000 VND. It is clear that the profit of farmers is only 1206 VND/ kg milk while they generate almost 4511 VND value-added.

But in fact, when calculating the cost production of farmers, the labor cost of family members were not calculated. Thus, the intermediate cost was maintained, whereas the total cost decreased to 6987.6/kg milk. So that, with the price of 11,000 VND/kg milk, they believe that they could earn the profit at 4012 VND/kg of milk.

### *2.5.2. Economic analysis of dairy plants*

Firstly, this chapter will not calculate the cost, profit and value-added of the collectors in Bavi. The reason is that the dairy milk chain in Bavi is different from other value chain. In this value chain, the collectors belong to dairy plant; they are not households or traders so the economic analysis is added into the dairy plant's economic analysis (**Table 3**).

In general, 1 kg of fresh milk is 24,000 VND. Dairy companies usually have high intermediate cost, which accounts for 46.01% of milk price with 16,102 VND. Intermediate cost contains input material, which is imported from other countries, the input milk from dairy farmers, electricity to operate dairy plant, water and other materials. The average total cost of dairy plant is 18,423 VND (78.53%). Thus, dairy companies gain the average profit of 5577 VND, which account for over 23% of total revenue. Besides, they generate the amount of valueadded at 7898 VND.

#### *2.5.3. Economic analysis of wholesalers*

average cost per 1 kg of milk is almost 9793.9 Vietnam dong (VND). This cost contains the cost of food, vaccine, electricity, water, labor and transportation as shown in **Table 2**. Farmers plant nappies grass, corn in their field and harvest for cows to diminish the cost of food. Despite of that saving, they still have to pay 1,300,000 VND per cow for industrial food, which accounts for 56.72% of total cost. However, the average price of 1 kg fresh milk is only 11,000 VND. It is clear that the profit of farmers is only 1206 VND/ kg milk while they generate

**Items Detail Unit A-Quantity A-Price A-Costs A-Share**

Purchase Kg 6 cows 1,300,000 7,800,000 56.72

6 cows 79,100 474,600 3.45

6 cows 20,000 120,000 0.87

6 cows 36,000 216,000 1.57

6 cows 50,000 300,000 2.18

Man month 4 160,000 640,000 4.65

6 cows 175,500 1,693,400

VND/cow/ month

month

month

month

Labor Family worker Man month 2 2,000,000 4,000,000 29.09

Transportation VND/month 200,000 1.45

Total cost VND 13,750,600 100

IC (Income) VND/month 9,110,600

**Total unit cost VND/KG 9793.87**

Revenue VND/month 6 cows 2,574,000 15,444,000

**Unit profit VND/kg 1 1206.125**

B **Sale price VND/kg 1 11,100**

month

D **Value-added VND/kg 4510.97**

**Table 2.** Cost, profit and value-added of dairy farmers (including family workers).

But in fact, when calculating the cost production of farmers, the labor cost of family members were not calculated. Thus, the intermediate cost was maintained, whereas the total cost decreased to 6987.6/kg milk. So that, with the price of 11,000 VND/kg milk, they believe that

almost 4511 VND value-added.

Source: Calculated by data collected, 2016.

A Cost

108 Agricultural Value Chain

Food Produce (grass,

others)

Vaccine VND/cow/

Electricity VND/cow/

Water VND/cow/

Hired worker (cutting grass)

C Profit VND/cow/

they could earn the profit at 4012 VND/kg of milk.

Wholesalers at level 1, who buy milk product directly for dairy companies; they are hired to sell product for companies. The advantage is that they do not need to buy facilities and the input products were not calculated in the intermediate cost. So that, all the input cost they have to pay is electricity and renting. The other cost is labor cost; the average wage of a worker or seller in the shop is 2,500,000 VND. In the end of month, the companies will assess the revenue of wholesaler and pay the commission for them. The commission is based on the level of revenue (revenue 10 million VND, get 10% commission; revenue 30 million VND, get 20% commission; and revenue over 50 million VND, get 30% commission). This method encourages the wholesalers trying to sell more and more.

On the other hand, the wholesalers at levels 2 and 3 (smaller scale) buy milk products of dairy companies in the low price and sell it to retailers and consumers with higher price to get profits. In this way, wholesalers have more independence in their businesses. They also were equipped facilities by companies (this is advertising and the taking market share of companies) (**Tables 4** and **5**).


**Table 3.** Cost, profit and value-added in 1 kg milk of dairy companies.


*2.5.4. Economic analysis of retailers*

value-added (**Table 6**).

the chain.

showed in **Table 8**.

Cost

**GO/TR (Total revenue)**

Source: Calculated by data collected, 2016.

**Table 6.** Cost, profit and value-added of dairy farmers of retailers.

*2.5.5. The benefit and value-added comparison among actors*

The retailers in the value chain of dairy milk in Bavi have the same business method with wholesalers at levels 2 and 3, but they have much smaller scale than wholesalers. Most retailers buy milk products at wholesaler and distribute to consumers. The average labor hired is smaller than one because they usually use their own labor force. The input price of retailers is 32,200 VND/kg milk and sale price is 35,000 VND. The average quantity milk sold per month is 200 kg. They could earn 1050 VND/kg milk and generate 1800 VND

Dairy Value Chain In Vietnam: Evidences from Bavi Area http://dx.doi.org/10.5772/intechopen.69450 111

Base on the method that Kaplinsky and Morris [4] has launched, the costs and profits are divided among the actors could be determined and thereby determine who may benefit from

In **Table 7**, it takes the cost A for the dairy farmers when they produce one unit of milk product; they sell milk product with price G. Follow the alongside of chain, H, I, J, K are price of one unit milk product of each actors. B, C, D, E are added cost when milk products transfer to the next steps including collectors, dairy plants, wholesalers and retailers. Hence, the total costs to produce one unit of milk product of each actor are: G + B, H + C and J + E. F = A + B + C + D + E is the total cost to produce one unit of milk product from the beginning stage (farmers) to the final stage of the value chain (consumers). So, the total profit that the chain get from producing one unit of milk product is F-K. From that, percentage of added cost, percentage of added-profit and percentage of retailer price of each actor in the dairy value chain will be calculated clearly. Based on **Table 7** and the data about unit total cost and price of each actor mentioned above, the relative financial position of actors in value chain was

**Items Unit A-Quantity A-Price A-Cost**

Input kg/month 200 32,200 6440,000 Electricity VND/month 200,000 Labor Man month 0–1 150,000 150,000 **IC (Income) VND/month 6,640,000 TC (Total cost) VND/month 6,790,000**

**NPr (Net profit) VND/month 200 1050 210,000 VA (Value-added) VND/kg 1800**

**VND/month 200 35,000 7,000,000**

**Table 4.** Cost, profit and value-added of wholesaler at level 1.


**Table 5.** Cost, profit and value-added of dairy farmers of wholesaler at level 2.

Finally, wholesalers could get an average profit at 6,900,000 VND and generate the valueadded per milk product at 2800 VND. With wholesalers at levels 2 and 3, the average total revenue is 32,200,000 VND per month and get about 3800 VND/kg milk. They create the average value-added at 3755.6 VND, which is higher than that in wholesaler level 1.

#### *2.5.4. Economic analysis of retailers*

The retailers in the value chain of dairy milk in Bavi have the same business method with wholesalers at levels 2 and 3, but they have much smaller scale than wholesalers. Most retailers buy milk products at wholesaler and distribute to consumers. The average labor hired is smaller than one because they usually use their own labor force. The input price of retailers is 32,200 VND/kg milk and sale price is 35,000 VND. The average quantity milk sold per month is 200 kg. They could earn 1050 VND/kg milk and generate 1800 VND value-added (**Table 6**).

#### *2.5.5. The benefit and value-added comparison among actors*

Base on the method that Kaplinsky and Morris [4] has launched, the costs and profits are divided among the actors could be determined and thereby determine who may benefit from the chain.

In **Table 7**, it takes the cost A for the dairy farmers when they produce one unit of milk product; they sell milk product with price G. Follow the alongside of chain, H, I, J, K are price of one unit milk product of each actors. B, C, D, E are added cost when milk products transfer to the next steps including collectors, dairy plants, wholesalers and retailers. Hence, the total costs to produce one unit of milk product of each actor are: G + B, H + C and J + E. F = A + B + C + D + E is the total cost to produce one unit of milk product from the beginning stage (farmers) to the final stage of the value chain (consumers). So, the total profit that the chain get from producing one unit of milk product is F-K. From that, percentage of added cost, percentage of added-profit and percentage of retailer price of each actor in the dairy value chain will be calculated clearly. Based on **Table 7** and the data about unit total cost and price of each actor mentioned above, the relative financial position of actors in value chain was showed in **Table 8**.


**Table 6.** Cost, profit and value-added of dairy farmers of retailers.

Finally, wholesalers could get an average profit at 6,900,000 VND and generate the valueadded per milk product at 2800 VND. With wholesalers at levels 2 and 3, the average total revenue is 32,200,000 VND per month and get about 3800 VND/kg milk. They create the aver-

age value-added at 3755.6 VND, which is higher than that in wholesaler level 1.

**Table 5.** Cost, profit and value-added of dairy farmers of wholesaler at level 2.

**Items Unit A-Quantity A-Price A-Cost**

Electricity VND/month 2,100,000 Rent VND/month 2,000,000 Labor Man month 2 2,500,000 5,000,000 **IC (Income) VND/month 4,100,000 TC (Total cost) VND/month 9,100,000**

**Get VND/month 16,500,000 NPr (Net profit) VND/month 6900,000 VA (Value-added) VND/kg 2800**

**Items Unit A-Quantity A-Price A-Cost**

Input kg/month 1000 24,000 24,000,000 Electricity VND/month 2,000,000

Labor Man month 1 400,000 400,000 **IC (Income) VND/month 28,000,000 TC (Total cost) VND/month 28,400,000**

**NPr (Net profit) VND/month 900 4222.2 3,800,000 VA (Value-added) VND/kg 3755.6**

VND/month 2,000,000

**VND/month 1000 32,200 32,200,000**

**VND/month 55,000,000**

**Wholesaler 1**

110 Agricultural Value Chain

**GO/TR (Total revenue)**

Cost

Rent and transportation

**GO/TR (Total revenue)**

Source: Calculated by data collected, 2016.

Source: Calculated by data collected, 2016.

**Table 4.** Cost, profit and value-added of wholesaler at level 1.

**Wholesalers 2 and 3**

Cost


only about 10% profit of the value chain. The profit receiving is inclined to the dairy companies, which get the highest profit with 5577 VND per one unit of milk product. Going to the end of the dairy milk chain, the profit decreases gradually with 32.67% for wholesalers and

Dairy Value Chain In Vietnam: Evidences from Bavi Area http://dx.doi.org/10.5772/intechopen.69450 113

Management activities of the dairy value chain in Bavi have many advantages such as:

• The value chain is concerned and encouraged as much as possible. Typically, farmers are supported in all aspects by the establishment of Bavi Cattle and Forage Research Center (BCFRC). To stimulate farmer in the increasing the number of dairy cows of the district, the BCAFRC collaborated with IDP companies (International Dairy Joint Stock Company established since 2004) to provide loans for farmers with 0% interest rate. With these loans,

Up to 93% of farmers buy cows from the center and 7% of farmers buy cows from other household (small cow). Hundred percent of them implemented fully **vaccinated** policy and 100% of

• Control of the company's commitment: The implementation of milk consumption of dairy companies registered trademark. Bavi milk is always under the control, which ensures the

• Milk quality management: At collecting stations of mainstream companies, there are al-

• Facilitating for wholesale and retail shops along the road and around the Bavi national

**Figure 5.** The comparison among actors in added cost, total profit and retail price-1. Source: Calculated by data collected,

ways strict testing processes to ensure the hygiene and quality of milk.

about 9% for retailers (**Figure 5**).

**2.6. The dairy chain management**

cow health managed by authorities.

fairness in trade by farmers.

eco-park.

2016.

they could buy breeds and build cow house.

**Table 7.** Relative financial position of actors in value chain.


**Table 8.** Cost and margin for actors in Bavi in 2016.

As presented on the data, it is evident that farmers incur high cost (41.91% of the total) and has very little profit (only account for 10.37%), whereas the wholesalers have little costs and relatively high profit with 32.67%. For the case of dairy plants (dairy companies), they added 31.77% of total cost—the second highest cost, however, it should be noted that, they get a remarkable profit with 47.95%. Overall, the financial position of actors indicated that the costs and margins are shared unequally in the chain. Specifically, for every 35,000 VND that a consumer pays for a 1 kg of milk product, 11,000 VND goes to farmers, 13,000 VND goes to dairy plant, 8200 VND goes to wholesaler and 2800 VND belong to retailers.

In the term of profit, the profit seems to be distributed unequally among actors along the chain of dairy milk. Farmers who invest most in their facilities, technology and food received only about 10% profit of the value chain. The profit receiving is inclined to the dairy companies, which get the highest profit with 5577 VND per one unit of milk product. Going to the end of the dairy milk chain, the profit decreases gradually with 32.67% for wholesalers and about 9% for retailers (**Figure 5**).

#### **2.6. The dairy chain management**

As presented on the data, it is evident that farmers incur high cost (41.91% of the total) and has very little profit (only account for 10.37%), whereas the wholesalers have little costs and relatively high profit with 32.67%. For the case of dairy plants (dairy companies), they added 31.77% of total cost—the second highest cost, however, it should be noted that, they get a remarkable profit with 47.95%. Overall, the financial position of actors indicated that the costs and margins are shared unequally in the chain. Specifically, for every 35,000 VND that a consumer pays for a 1 kg of milk product, 11,000 VND goes to farmers, 13,000 VND goes to dairy

**Chain actors Costs Revenue Profit Margin**

Unit price Unit profit % Total

profit

(K−F)

(K−F)

(K-F)

(K-F)

(K−F)

100 K−F 100 K 100

Unit price Unit profit % Total

profit

Unit margin

G G/K

H−G (H−G)/K

I−H (I−H)/K

J−I (J−I)/K

K−J (K−J)/K

Unit margin %

Retail price

% Retail price

% Added cost

Farmer A – A/F G G−A (G−A)/

Collectors G + B B B/F H H−B−G (H−B−G)/

Dairy plant H + C C C/F I I−C−H (I−C−H)/

Wholesaler I + D D D/F J J−D−I (J−D−I)/

Retailer J + E E E/F K K−E−J (K−E−J)/

**Chain actor Costs Revenue Profit Margin**

Farmers 9793.9 — 41.91 11,000 1206.1 10.37 11,000 31.43 Dairy plant 18,423 7423 31.77 24,000 5577 47.94 13,000 37.14 Wholesalers 284,000 4400 18.83 32,200 3800 32.67 8200 23.43 Retailers 33,950 1750 7.49 35,000 1050 9.03 2800 8 Total 23,366.9 100.00 11,633.1 35,000 100

% Added cost

Unit total cost

112 Agricultural Value Chain

Total F = A + B

Unit total cost

Source: Calculated by data collected, 2016.

**Table 8.** Cost and margin for actors in Bavi in 2016.

Source: Kaplinsky and Morris [4].

Added unit cost

+ C + D + E

Added unit cost

**Table 7.** Relative financial position of actors in value chain.

In the term of profit, the profit seems to be distributed unequally among actors along the chain of dairy milk. Farmers who invest most in their facilities, technology and food received

plant, 8200 VND goes to wholesaler and 2800 VND belong to retailers.

Management activities of the dairy value chain in Bavi have many advantages such as:

• The value chain is concerned and encouraged as much as possible. Typically, farmers are supported in all aspects by the establishment of Bavi Cattle and Forage Research Center (BCFRC). To stimulate farmer in the increasing the number of dairy cows of the district, the BCAFRC collaborated with IDP companies (International Dairy Joint Stock Company established since 2004) to provide loans for farmers with 0% interest rate. With these loans, they could buy breeds and build cow house.

Up to 93% of farmers buy cows from the center and 7% of farmers buy cows from other household (small cow). Hundred percent of them implemented fully **vaccinated** policy and 100% of cow health managed by authorities.


**Figure 5.** The comparison among actors in added cost, total profit and retail price-1. Source: Calculated by data collected, 2016.

Besides, there are the inevitable weak points at which express the lack of authority's control. Bavi milk brand so far was given right to only two companies. However, there are a lot of companies taking advantage of the lax management, they set up the companies with the same name to cheat consumers. They purchase milk from dairy farmers having under and poor standard milk; which affects the consumer health. Here, the list of the companies who were not allowed to use the brand of Bavi milk but still sell a huge amount of milk everyday (**Table 9**).

result, dairy companies could use many methods to buy raw milk of farmers at a low price. Thus, to increase the profits received of dairy farmers, it is indispensable to increase the

Dairy Value Chain In Vietnam: Evidences from Bavi Area http://dx.doi.org/10.5772/intechopen.69450 115

• To ensure the criteria in strict quality of milk, farmers should choose the good breeding

• The small-scale milk collection of dairy companies, in fact, is a costly method. Moreover, the gap in the education level of each factors spark difficulties for the implementation of contracts. Therefore, companies should combine small milk collection stations into the largest milk collection stations. The commune should establish some organizations to rep-

• Building waste-treatment system: In Bavi, it is clear to the cattle waste in front of farmer's house (farmers aim to use it to grow grass). However, it not only pollutes the human living environment but also affect the cleanliness of cows and milk. Thus, it is necessary for

The above measures could not only solve the problem of distribution but also enhance the connection between actors. Management is also the problem that the thesis wants to give

• To be able to manage the value chain of Bavi milk, policymakers and milk entrepreneur should encourage factors to be aware of the value chain of dairy milk and the need and

• Policymakers should check and review all enterprises using Bavi Milk brand for developing their business. This activity could prevent other companies from using the Bavi milk

• Checking the quality of raw milk and milk products frequently. In serious problem, au-

• Provide adequate information to dairy farmers about the companies operating illegally to

With these measures, the Bavi milk brand would becoming stronger, reaching farther and

We would like to acknowledge all supports from Vietnam National University at Hanoi and especially from Faculty of International Business and Economics, University of Economics and Business. We also appreciate our family and colleagues for their constant encouragement.

brand for developing business illegally by taking advantage of the Bavi brand.

cows that have ability to avoid disease and get high productivity.

recommendations that improve the value chain of dairy products in Bavi.

thorities should deprive the license registration of companies.

avoid the milk supplying from farmers to those companies. • Do not allow the distributors to sell the unclear brand product.

Without them, this research would not have been possible.

each actor in the value chain will be received benefits that they deserve.

resent farmers to sign contracts with the companies.

government to build a waste-treatment system.

benefit when they participate deeply in the chain.

role of farmers.

**Acknowledgements**

#### **2.7. Conclusion and recommendation**

In conclusion, the value of income in the chain is distributed unequally. The benefits that farmers receive are inadequate with the costs they have to pay. This is a particular chain in which the main factors boosting the chain are factories and the revenue increasing also reflects the benefit of them. The result is that the value-added in the chain is also biased toward the dairy plant. This chapter pointed out the shortcomings in the cost calculation of farmers. All the expenses such as wages and the opportunity are calculated in the total cost of dairy plant, whereas dairy farmers do not mention about these cost. Thus, in terms of benefits, farmers suffer more and face with more disadvantages, even though they should have received more incentives. In terms of management, Bavi's authorities could not manage the output of milk in the perfect way. It is the lax management has led to a series of counterfeit goods appear on the market today. These low quality products were sold right on the highway and the Bavi's tourist destinations, which affect negatively on Bavi's brand, tourism and even consumer health.

Thus, firstly, it is necessary to make measures in order to obtain the balance among actors, especially dairy farmers.

• In the whole value chain, the dairy plants play the most important role. Farmers could not have enough power to negotiate with dairy companies about prices of raw milk. As a


Source: Calculated by data collected, 2016.

**Table 9.** Name of company illegally using Bavi milk brand.

result, dairy companies could use many methods to buy raw milk of farmers at a low price. Thus, to increase the profits received of dairy farmers, it is indispensable to increase the role of farmers.


The above measures could not only solve the problem of distribution but also enhance the connection between actors. Management is also the problem that the thesis wants to give recommendations that improve the value chain of dairy products in Bavi.


With these measures, the Bavi milk brand would becoming stronger, reaching farther and each actor in the value chain will be received benefits that they deserve.

### **Acknowledgements**

Besides, there are the inevitable weak points at which express the lack of authority's control. Bavi milk brand so far was given right to only two companies. However, there are a lot of companies taking advantage of the lax management, they set up the companies with the same name to cheat consumers. They purchase milk from dairy farmers having under and poor standard milk; which affects the consumer health. Here, the list of the companies who were not allowed to use the brand of Bavi milk but still sell a huge amount of milk everyday

In conclusion, the value of income in the chain is distributed unequally. The benefits that farmers receive are inadequate with the costs they have to pay. This is a particular chain in which the main factors boosting the chain are factories and the revenue increasing also reflects the benefit of them. The result is that the value-added in the chain is also biased toward the dairy plant. This chapter pointed out the shortcomings in the cost calculation of farmers. All the expenses such as wages and the opportunity are calculated in the total cost of dairy plant, whereas dairy farmers do not mention about these cost. Thus, in terms of benefits, farmers suffer more and face with more disadvantages, even though they should have received more incentives. In terms of management, Bavi's authorities could not manage the output of milk in the perfect way. It is the lax management has led to a series of counterfeit goods appear on the market today. These low quality products were sold right on the highway and the Bavi's tourist destinations, which affect negatively on Bavi's brand, tourism and

Thus, firstly, it is necessary to make measures in order to obtain the balance among actors,

• In the whole value chain, the dairy plants play the most important role. Farmers could not have enough power to negotiate with dairy companies about prices of raw milk. As a

**Name**

6 Bavi milk and cake production JSC company

1 Bavi Yogurt LTD company

3 Vietnam Dairy—Bavi JSC 4 Fresh milk JSC company 5 Bavi fresh milk JSC company

2 Bavi milk investment JSC company

7 Bavi milk and cake JSC company

**Table 9.** Name of company illegally using Bavi milk brand.

Source: Calculated by data collected, 2016.

(**Table 9**).

114 Agricultural Value Chain

even consumer health.

especially dairy farmers.

**2.7. Conclusion and recommendation**

We would like to acknowledge all supports from Vietnam National University at Hanoi and especially from Faculty of International Business and Economics, University of Economics and Business. We also appreciate our family and colleagues for their constant encouragement. Without them, this research would not have been possible.

## **Author details**

Nguyen Viet Khoi1,2\*, Hoang Thi Hai Yen<sup>1</sup> , Tong Van Khai1 , Nguyen Tien Duc<sup>3</sup> and Dang Thi Phuong Hoa<sup>4</sup>

\*Address all correspondence to: khoivnu@gmail.com

1 Vietnam National University, Hanoi, Vietnam

2 Faculty of International Business and Economics, University of Economics and Business, Hanoi, Vietnam

**Chapter 7**

**Provisional chapter**

**Soybean Agribusiness in Argentina (1990–2015):**

**Economic, Territorial, Environmental, and Political** 

DOI: 10.5772/intechopen.70463

**Soybean Agribusiness in Argentina (1990–2015): Socio-**

Nowadays, soybean value chain is both the major expression of agribusiness and one of the most troublesome uses of territory of Argentina. This chapter is aimed to analyzing the worrying socio-economic, territorial, environmental, and political implications unchained by the expansion of the soybean's pattern during the last 25 years. On the basis of scholarly literature and both official and unofficial sources of data, we have studied the restructuration of the rural sector, the concentration of both the rural property and the agro-industrial chain, the new territorial enclosures, the socio-ecological and health consequences of the soybean's advance, and the influence of the transnational seed industry on the farmers' subordination. Our results show a substantial reduction of both the amount of rural units and the traditional production areas, the emergence of new leasing practices, the accumulation chain's vertical integration, the growth of the land's concentration, the expulsion of aborigines and peasants, the increase of deforestation and environmental degradation, the loss of legal and food sovereignty, and the serious impacts on the population's health due to the massive fumigations with agrochemicals. The chapter's findings suggest that soybean agribusiness should be considered as an irrational use of territory for most of the national society.

**Keywords:** agribusiness, GM soybean, rural restructuration, land's concentration, vertical integration, territorial enclosures, environmental and health issues, seed and agrochemical

**Socio-Economic, Territorial, Environmental, and**

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution,

© 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use,

distribution, and reproduction in any medium, provided the original work is properly cited.

and reproduction in any medium, provided the original work is properly cited.

Geographic space just can be explained by analyzing the division of labor's dynamics and the different uses of territory [1], i.e., the configuration of material and immaterial flows that

Sebastián Gómez Lende and Guillermo Velázquez

Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

Sebastián Gómez Lende and Guillermo

http://dx.doi.org/10.5772/intechopen.70463

**Political Implications**

**Implications**

**Abstract**

companies, Argentina

**1. Introduction**

Velázquez

3 Noibai International Airport, Airport Corporation of Vietnam, Hanoi, Vietnam

4 Journal of Economic Studies, Vietnam Institute of Economics, VASS, Hanoi, Vietnam

### **References**


**Provisional chapter**

### **Soybean Agribusiness in Argentina (1990–2015): Socio-Economic, Territorial, Environmental, and Political Implications Economic, Territorial, Environmental, and Political Implications**

DOI: 10.5772/intechopen.70463

**Soybean Agribusiness in Argentina (1990–2015): Socio-**

Sebastián Gómez Lende and Guillermo Velázquez Velázquez

Additional information is available at the end of the chapter Additional information is available at the end of the chapter

Sebastián Gómez Lende and Guillermo

http://dx.doi.org/10.5772/intechopen.70463

#### **Abstract**

**Author details**

116 Agricultural Value Chain

Hanoi, Vietnam

**References**

1985

2014

Dang Thi Phuong Hoa<sup>4</sup>

Nguyen Viet Khoi1,2\*, Hoang Thi Hai Yen<sup>1</sup>

Springer Plus. 2013;**2**(1):1-6

from China. Hanoi: VNU Publishing house; 2013

of Managing Value and Supply Chains. 2014;**5**(3)

\*Address all correspondence to: khoivnu@gmail.com

1 Vietnam National University, Hanoi, Vietnam

, Tong Van Khai1

2 Faculty of International Business and Economics, University of Economics and Business,

[1] Khoi NV. Wicked problems: A value chain approach from Vietnam's dairy product.

[2] Khoi NV. Global Value Chains of Transnational Corporations: The Practical Approach

[3] Porter ME. Competitive Advantage: Creating and Sustaining Superior Performance;

[5] Khoi NV. The dairy industry in Vietnam: A value chain approach. International Journal

[6] Khoi NV. Opportunities consolidation and mergers in the dairy sector in Vietnam from the perspective of the value chain. Journal of Economic Research (Economics Studies).

[4] Kapslin R, Morris M. A Handbook for Research Value Chain. Ottawa: IDRC; 2001

3 Noibai International Airport, Airport Corporation of Vietnam, Hanoi, Vietnam

4 Journal of Economic Studies, Vietnam Institute of Economics, VASS, Hanoi, Vietnam

, Nguyen Tien Duc<sup>3</sup>

and

Nowadays, soybean value chain is both the major expression of agribusiness and one of the most troublesome uses of territory of Argentina. This chapter is aimed to analyzing the worrying socio-economic, territorial, environmental, and political implications unchained by the expansion of the soybean's pattern during the last 25 years. On the basis of scholarly literature and both official and unofficial sources of data, we have studied the restructuration of the rural sector, the concentration of both the rural property and the agro-industrial chain, the new territorial enclosures, the socio-ecological and health consequences of the soybean's advance, and the influence of the transnational seed industry on the farmers' subordination. Our results show a substantial reduction of both the amount of rural units and the traditional production areas, the emergence of new leasing practices, the accumulation chain's vertical integration, the growth of the land's concentration, the expulsion of aborigines and peasants, the increase of deforestation and environmental degradation, the loss of legal and food sovereignty, and the serious impacts on the population's health due to the massive fumigations with agrochemicals. The chapter's findings suggest that soybean agribusiness should be considered as an irrational use of territory for most of the national society.

**Keywords:** agribusiness, GM soybean, rural restructuration, land's concentration, vertical integration, territorial enclosures, environmental and health issues, seed and agrochemical companies, Argentina

### **1. Introduction**

Geographic space just can be explained by analyzing the division of labor's dynamics and the different uses of territory [1], i.e., the configuration of material and immaterial flows that

Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons

show the spatial and temporal regularities of a given cycle of capital's rotation and reproduction [2]. Regarding the agricultural uses of territory belonging to the so-called agribusiness [3], such as "spatial circuits of production" [4] are typically organized through agro-industrial value chains, which include several stages (e.g., agricultural inputs' supply, rural activities, industrialization and distribution of goods, transport, financial, and commercial networks, etc.). Various conflicts and mechanisms of domination are unleashed on the surplus' appropriation owing to the input-output links and the unequal social relations of power developed among the agents of each chain's stage.

and Sabatino state that soybean's boom has led to both the scarcity and the price increase of the

Soybean Agribusiness in Argentina (1990–2015): Socio-Economic, Territorial, Environmental...

http://dx.doi.org/10.5772/intechopen.70463

119

Other researchers have expressed concern about the risks of the transgenic soy agriculture at great scale, noting the loss of legal and food sovereignty stemming from the seeds' privatization [24–27]. Furthermore, several papers have studied the environmental implications of soybean fever, specially soil erosion, virtual water exports, and deforestation [28–32]. In addition, Rodríguez Striebeck analyzes the soybean boom's influence on the land struggles [33]. Finally, other works have focused on the relationship between soybean fever, fumigations with agrochemicals and the substantial growth of oncological diseases and births with

As a result, GM soybean is not only the major expression of agribusiness in Argentina but one of the most controversial and troublesome uses of territory in this country. Because of such situation, the main purpose of this chapter is analyzing the worrying socio-economic, territorial, environmental, and political implications unchained by the expansion of the soybean's pattern

Firstly, the soybean agribusiness' socio-economic issues, i.e., the technique and productive restructuration of the rural sector, the new leasing practices, and the agro-industrial chain's vertical integration are studied by analyzing the variation of the area sown with other crops and occupied by livestock, the reduction of rural units, the surface leased to sowing pools and investment funds, the origin of such capitals, and the participation of the main soybean firms in different links of accumulation chain. Secondly, the territorial perspective, i.e., the new enclosures associated to both the land's concentration and the expulsion of peasants and aborigines, is considered by describing the land grabbed by the landowners, the land struggles in soybean provinces, and the dispossession mechanisms carried out by farmers, sowing pools, investment funds, and agroindustries. Thirdly, the environmental and health consequences of this pattern are discussed by considering the area of native forests logged due to the soybean frontier's expansion, other ecological degradation's phenomenon (e.g., virtual water exports, soil erosion, greenhouse gas emissions, etc.), the volume and kind of agrochemicals used in soybean cultivation, and the reports on health problems associated to such fumigations. Finally, the influence of the transnational seed industry on the farmers' subordination and the loss of both legal and food sovereignty is demonstrated by identifying the major companies of the sector, characterizing their accumulation strategies, and describing the main conflicts regarding the acquisition and use of transgenic

**2. Socio-economic issues of the soybean boom: from the agricultural** 

**and the vertical integration by property**

**restructuration and the rural units decreasing to the new leasing practices** 

Soybean agribusiness is essentially an exports-oriented accumulation chain. More than 90% of production is exported to countries including China, India, the European Union, Pakistan,

malformations reported during the last years in the rural towns [34–38].

national diet's traditional foods [23].

during the last 25 years.

soybean' seeds.

Since each of the agribusiness clusters has got one (or more than one) accumulation cores, the most dynamic capitalist agents deploy several strategies to articulate the productive chain according to their own interest. As a result, they appropriate most of the profits produced by other agents and the resources injected into the circuit by the State [5, 6]. Such situation implies that agribusiness may be considered as the rural expression of the "neo-extractivism"[7], i.e., updating the natural resource exploitation and profits external appropriation's pattern introduced in Latin America during the colonial age and renewed during the following periods [8].

Although in the past, soybean stayed as an exotic species and a botanical rarity in Argentina, currently it concentrates 59% of national grain area and 93.2% of Argentinean grain production. Soybean areas have grown exponentially during the 4 last decades, climbing from 30,470 hectares in the agricultural year 1970/1971 to 206,025,042 hectares in 2015/2016. Similarly, soybean production have increased 451% between 1989/1990 (10,671,100 tons) and 2015/2016 (58,800,498 tons) [7, 9]. As a result, Argentina became the third soybean world producer and exporter, as well as the first soy oils and flours exporter [10, 11].

Several factors deserve to be mentioned in order to explain that change, such as the suitability of this crop to be combined with the production of hybrid varieties of wheat, the growth of the European market of balanced feed for pig and poultry [12], the structural reforms introduced by neoliberalism during the 1990s, the world crisis of stockbreeding, the sustained growth of external demand for vegetable proteins due to the European Economic Community's authorization on the imports and processing (but not planting) of GM soybeans, and the consequent rise of the soybean's international price. Lately, the agro fuels boom and the financial crisis unchained in 2008, which encouraged investment funds to migrate from the real state markets to the commodities markets, have undoubtedly helped to consolidate the soybean pattern in Argentina.

Although big farmers, agro-industrial enterprises, seed companies, and even the National State often invoke the alleged benefits of this pattern, during the last 15 years, a leafy scholarly literature has revealed the dark side of the soybean boom. Several researchers have presented general studies on the negative impacts of the soybean pattern [7, 13–19], whereas other authors exhaustively analyze individual features of this matter. For instance, Teubal emphasizes the vulnerable and dependant condition of soy monoculture and its export orientation [20], whereas Teubal and Rodríguez claim that soybean pattern is the major driver of the concentration and transnationalization of the Argentinean agro-industrial accumulation chain [21]. Hernández focuses on the cultural and empresarial fragmentation of the rural sector [22], while Domínguez and Sabatino state that soybean's boom has led to both the scarcity and the price increase of the national diet's traditional foods [23].

show the spatial and temporal regularities of a given cycle of capital's rotation and reproduction [2]. Regarding the agricultural uses of territory belonging to the so-called agribusiness [3], such as "spatial circuits of production" [4] are typically organized through agro-industrial value chains, which include several stages (e.g., agricultural inputs' supply, rural activities, industrialization and distribution of goods, transport, financial, and commercial networks, etc.). Various conflicts and mechanisms of domination are unleashed on the surplus' appropriation owing to the input-output links and the unequal social relations of power developed

Since each of the agribusiness clusters has got one (or more than one) accumulation cores, the most dynamic capitalist agents deploy several strategies to articulate the productive chain according to their own interest. As a result, they appropriate most of the profits produced by other agents and the resources injected into the circuit by the State [5, 6]. Such situation implies that agribusiness may be considered as the rural expression of the "neo-extractivism"[7], i.e., updating the natural resource exploitation and profits external appropriation's pattern introduced in Latin America during the colonial age and renewed during the follow-

Although in the past, soybean stayed as an exotic species and a botanical rarity in Argentina, currently it concentrates 59% of national grain area and 93.2% of Argentinean grain production. Soybean areas have grown exponentially during the 4 last decades, climbing from 30,470 hectares in the agricultural year 1970/1971 to 206,025,042 hectares in 2015/2016. Similarly, soybean production have increased 451% between 1989/1990 (10,671,100 tons) and 2015/2016 (58,800,498 tons) [7, 9]. As a result, Argentina became the third soybean world producer and exporter, as

Several factors deserve to be mentioned in order to explain that change, such as the suitability of this crop to be combined with the production of hybrid varieties of wheat, the growth of the European market of balanced feed for pig and poultry [12], the structural reforms introduced by neoliberalism during the 1990s, the world crisis of stockbreeding, the sustained growth of external demand for vegetable proteins due to the European Economic Community's authorization on the imports and processing (but not planting) of GM soybeans, and the consequent rise of the soybean's international price. Lately, the agro fuels boom and the financial crisis unchained in 2008, which encouraged investment funds to migrate from the real state markets to the commodities markets, have undoubtedly helped to consolidate the soybean pattern in Argentina.

Although big farmers, agro-industrial enterprises, seed companies, and even the National State often invoke the alleged benefits of this pattern, during the last 15 years, a leafy scholarly literature has revealed the dark side of the soybean boom. Several researchers have presented general studies on the negative impacts of the soybean pattern [7, 13–19], whereas other authors exhaustively analyze individual features of this matter. For instance, Teubal emphasizes the vulnerable and dependant condition of soy monoculture and its export orientation [20], whereas Teubal and Rodríguez claim that soybean pattern is the major driver of the concentration and transnationalization of the Argentinean agro-industrial accumulation chain [21]. Hernández focuses on the cultural and empresarial fragmentation of the rural sector [22], while Domínguez

among the agents of each chain's stage.

well as the first soy oils and flours exporter [10, 11].

ing periods [8].

118 Agricultural Value Chain

Other researchers have expressed concern about the risks of the transgenic soy agriculture at great scale, noting the loss of legal and food sovereignty stemming from the seeds' privatization [24–27]. Furthermore, several papers have studied the environmental implications of soybean fever, specially soil erosion, virtual water exports, and deforestation [28–32]. In addition, Rodríguez Striebeck analyzes the soybean boom's influence on the land struggles [33]. Finally, other works have focused on the relationship between soybean fever, fumigations with agrochemicals and the substantial growth of oncological diseases and births with malformations reported during the last years in the rural towns [34–38].

As a result, GM soybean is not only the major expression of agribusiness in Argentina but one of the most controversial and troublesome uses of territory in this country. Because of such situation, the main purpose of this chapter is analyzing the worrying socio-economic, territorial, environmental, and political implications unchained by the expansion of the soybean's pattern during the last 25 years.

Firstly, the soybean agribusiness' socio-economic issues, i.e., the technique and productive restructuration of the rural sector, the new leasing practices, and the agro-industrial chain's vertical integration are studied by analyzing the variation of the area sown with other crops and occupied by livestock, the reduction of rural units, the surface leased to sowing pools and investment funds, the origin of such capitals, and the participation of the main soybean firms in different links of accumulation chain. Secondly, the territorial perspective, i.e., the new enclosures associated to both the land's concentration and the expulsion of peasants and aborigines, is considered by describing the land grabbed by the landowners, the land struggles in soybean provinces, and the dispossession mechanisms carried out by farmers, sowing pools, investment funds, and agroindustries. Thirdly, the environmental and health consequences of this pattern are discussed by considering the area of native forests logged due to the soybean frontier's expansion, other ecological degradation's phenomenon (e.g., virtual water exports, soil erosion, greenhouse gas emissions, etc.), the volume and kind of agrochemicals used in soybean cultivation, and the reports on health problems associated to such fumigations. Finally, the influence of the transnational seed industry on the farmers' subordination and the loss of both legal and food sovereignty is demonstrated by identifying the major companies of the sector, characterizing their accumulation strategies, and describing the main conflicts regarding the acquisition and use of transgenic soybean' seeds.

### **2. Socio-economic issues of the soybean boom: from the agricultural restructuration and the rural units decreasing to the new leasing practices and the vertical integration by property**

Soybean agribusiness is essentially an exports-oriented accumulation chain. More than 90% of production is exported to countries including China, India, the European Union, Pakistan, Bangladesh, and Japan [10, 11]. Since soybean value chain concentrates 40% of agricultural exports [12] and is the major exporter sector (27.7%) of the Argentinean economy [39], such productive circuit generates bulky profits (20,000 million of dollars per year). A substantial part (30%) of these profits is appropriated by the National State by collecting taxes on exports. Nevertheless, the soybean value chain's contribution to labor market is very small. Actually, the labor force employed in the soybean cluster reaches 193,894 workers, i.e., 10.3% of agroindustrial employment and 3.1% of whole employment. Such figures imply a labor intensity (seven jobs per million of dollars of value), three times smaller than the national average [40, 41]. In addition, soybean boom has led to a dramatic restructuration of the rural sector in our country.

land conquered by the agricultural frontier's advance in Chaco, Tucumán, Salta, and Santiago del Estero [11]. Although both the Pampas' periphery (e.g., Entre Ríos, and La Pampa) and the provinces located outside this region (e.g., Chaco, Santiago del Estero, etc.) have increased substantially its relative weight on the planted area, the Pampas' core still concentrates 85% of soybean's production units [9, 11]. Likewise, the chain's agricultural stage shows high levels of business concentration. In fact, 6% of agricultural units mean 54% of soybean grain's pro-

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According to Silveira, nowadays modern uses of territory seek to erase the traces of the past in order to the space be rewritten by the new rationalities of the present [44]. The aforementioned soybean expansion is, by way, a clear example of this logic, though it has led to the disappearance of both the ancient practices of rotation among stockbreeding and agriculture, and the traditional regimes of alternation between diverse crops. For instance, more than 10 millions of heads of cattle were suppressed during the 1990s, while the livestock decreased 6% between 1988 and 2002 and the amount of milking yards was halved [23]. In the Pampas, i.e., a strongly milk's production-specialized region, some milk companies closed most of their production units to plant soybean. Furthermore, scarcity of lands for stockbreeding has implied decreasing of the livestock area, as well as the cows' concentration in the so-called feed lots. Other traditional productions were sacrificed in order to free lands to the soybean frontier's advance. For example, the oats area decreased by 37% between 1989/1990 and 2015/2016, as well as sunflower and barley area reduced by 48.7 and 50.5%, respectively. Moreover, the falls suffered by the canary grass (66.8%), the millet (87.7%), and the flax areas (97.1%) were even more substantial [9]. Generally speaking, although other crops have increased its area (e.g., sorghum, corn, wheat, bread wheat, horticultural products, peanut, etc.), such global variations hide a dramatic reduction during the early years of soybean boom. Outside the Pampas, the previous structural crisis of some crops was functional to the monoculture's advance too. For instance, Tucumán lost the quarter of sugar cane area between 1990 and 2001, whereas the

Chaco's cotton area reduced by 52.3% during the period 1990–2015 [9].

and living with dignity before the soybean boom [45].

Owing to the growing weight of science and technology in rural activities, the new soybean production's requirements have involved the introduction of specialized technical systems (e.g., direct sowing, modern rural machinery, global-action herbicides, fertilizing with nitrogenous, prilled urea and phosphorus, etc.). Both the modernization of agricultural practices and the incorporation of the last technology led to the massive indebtedness of the rural producers. Due to the high interest rates, the original debts' values increased 12 times in few years. As a result, in the beginning of the 2000s, the rural sector owed 7000 million dollars to banks, as well as 3000 million dollars to inputs suppliers. Such situation implied the bargain sale of 10 million hectares and the mortgage of 14 million hectares [7, 12]. Since they were unable to resist the productive and financial costs of the new soybean's pattern, several small and medium-size producers disappeared, the same ones who could renew their equipment

According to the Agricultural National Census, almost third (32.9%) of the Argentinean rural production units disappeared during the period 1988–2008 [42, 46]. A strong, noticeable empirical correlation between such farms reduction and the soybean specialization may be

duction [43].

As shown by **Figure 1**, agricultural stage of the soybean circuit has acquired a noticeable geographic dispersion, not only strengthening in the Pampas, i.e., Buenos Aires, Córdoba, Santa Fe, Entre Ríos, and La Pampa, but spreading much of other Argentinean provinces (e.g., San Luis, Jujuy, Salta, Catamarca, Santiago del Estero, Tucumán, Chaco, Formosa, Corrientes, and Misiones). In fact, all these provinces increased its area planted with soybean among 33.3 and 7.920% during the period 1990–2015, except for Misiones [9]. According to the last Agricultural National Census performed in 2008, soybean has absorbed among the third and more than half of the agricultural area of the provinces of Buenos Aires, Santiago del Estero, Chaco, Tucumán, Córdoba, Entre Ríos, and Santa Fe [42]. Significantly, soybean means 66% of the

**Figure 1.** Area planted with soybean at department level. Argentina, agricultural year 2015/2016.

land conquered by the agricultural frontier's advance in Chaco, Tucumán, Salta, and Santiago del Estero [11]. Although both the Pampas' periphery (e.g., Entre Ríos, and La Pampa) and the provinces located outside this region (e.g., Chaco, Santiago del Estero, etc.) have increased substantially its relative weight on the planted area, the Pampas' core still concentrates 85% of soybean's production units [9, 11]. Likewise, the chain's agricultural stage shows high levels of business concentration. In fact, 6% of agricultural units mean 54% of soybean grain's production [43].

Bangladesh, and Japan [10, 11]. Since soybean value chain concentrates 40% of agricultural exports [12] and is the major exporter sector (27.7%) of the Argentinean economy [39], such productive circuit generates bulky profits (20,000 million of dollars per year). A substantial part (30%) of these profits is appropriated by the National State by collecting taxes on exports. Nevertheless, the soybean value chain's contribution to labor market is very small. Actually, the labor force employed in the soybean cluster reaches 193,894 workers, i.e., 10.3% of agroindustrial employment and 3.1% of whole employment. Such figures imply a labor intensity (seven jobs per million of dollars of value), three times smaller than the national average [40, 41]. In addition, soybean boom has led to a dramatic restructuration of the rural sector in our

As shown by **Figure 1**, agricultural stage of the soybean circuit has acquired a noticeable geographic dispersion, not only strengthening in the Pampas, i.e., Buenos Aires, Córdoba, Santa Fe, Entre Ríos, and La Pampa, but spreading much of other Argentinean provinces (e.g., San Luis, Jujuy, Salta, Catamarca, Santiago del Estero, Tucumán, Chaco, Formosa, Corrientes, and Misiones). In fact, all these provinces increased its area planted with soybean among 33.3 and 7.920% during the period 1990–2015, except for Misiones [9]. According to the last Agricultural National Census performed in 2008, soybean has absorbed among the third and more than half of the agricultural area of the provinces of Buenos Aires, Santiago del Estero, Chaco, Tucumán, Córdoba, Entre Ríos, and Santa Fe [42]. Significantly, soybean means 66% of the

**Figure 1.** Area planted with soybean at department level. Argentina, agricultural year 2015/2016.

country.

120 Agricultural Value Chain

According to Silveira, nowadays modern uses of territory seek to erase the traces of the past in order to the space be rewritten by the new rationalities of the present [44]. The aforementioned soybean expansion is, by way, a clear example of this logic, though it has led to the disappearance of both the ancient practices of rotation among stockbreeding and agriculture, and the traditional regimes of alternation between diverse crops. For instance, more than 10 millions of heads of cattle were suppressed during the 1990s, while the livestock decreased 6% between 1988 and 2002 and the amount of milking yards was halved [23]. In the Pampas, i.e., a strongly milk's production-specialized region, some milk companies closed most of their production units to plant soybean. Furthermore, scarcity of lands for stockbreeding has implied decreasing of the livestock area, as well as the cows' concentration in the so-called feed lots.

Other traditional productions were sacrificed in order to free lands to the soybean frontier's advance. For example, the oats area decreased by 37% between 1989/1990 and 2015/2016, as well as sunflower and barley area reduced by 48.7 and 50.5%, respectively. Moreover, the falls suffered by the canary grass (66.8%), the millet (87.7%), and the flax areas (97.1%) were even more substantial [9]. Generally speaking, although other crops have increased its area (e.g., sorghum, corn, wheat, bread wheat, horticultural products, peanut, etc.), such global variations hide a dramatic reduction during the early years of soybean boom. Outside the Pampas, the previous structural crisis of some crops was functional to the monoculture's advance too. For instance, Tucumán lost the quarter of sugar cane area between 1990 and 2001, whereas the Chaco's cotton area reduced by 52.3% during the period 1990–2015 [9].

Owing to the growing weight of science and technology in rural activities, the new soybean production's requirements have involved the introduction of specialized technical systems (e.g., direct sowing, modern rural machinery, global-action herbicides, fertilizing with nitrogenous, prilled urea and phosphorus, etc.). Both the modernization of agricultural practices and the incorporation of the last technology led to the massive indebtedness of the rural producers. Due to the high interest rates, the original debts' values increased 12 times in few years. As a result, in the beginning of the 2000s, the rural sector owed 7000 million dollars to banks, as well as 3000 million dollars to inputs suppliers. Such situation implied the bargain sale of 10 million hectares and the mortgage of 14 million hectares [7, 12]. Since they were unable to resist the productive and financial costs of the new soybean's pattern, several small and medium-size producers disappeared, the same ones who could renew their equipment and living with dignity before the soybean boom [45].

According to the Agricultural National Census, almost third (32.9%) of the Argentinean rural production units disappeared during the period 1988–2008 [42, 46]. A strong, noticeable empirical correlation between such farms reduction and the soybean specialization may be identified. Significantly, none of the 10 major soybean provinces lost less than the quarter of rural production units during the analyzed period, except for La Pampa and Salta. In addition, these ten provinces represent 68.8% of the missing farms of the country (95,418 over a total of 138,639). Such reduction was equal to or higher than the national average in almost half of the cases, as demonstrated by Entre Ríos (−32.8%), Córdoba (−33.7%), San Luis (−38.6%), Tucumán (−53.7%), and Buenos Aires (−54.1%). Finally, the four major soybean provinces, i.e., Buenos Aires, Córdoba, Santa Fe, and Entre Ríos, have meant 53.1% of missing units of rural production.

grain traders from USA, France, Switzerland, Netherlands, and China (e.g., Cargill, Louis Dreyfus, Glencore, Bunge, Noble, Nidera, and Cofco). However, some big national firms have a significant participation in soybean agribusiness too, such as Oleaginosa Moreno, Aceitera General Deheza, Molinos Cañuelas, Vicentín, and Molinos Río de la Plata. Remarkably, only thirteen companies produced 89% of both soybean flours and oils in 2015, while just eight

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Moreover, the corporations aforementioned control two other strategic links of soybean circuit: the biodiesel production and the exports. Owing to both the world agro fuels boom and the growth in European and US markets, the Argentinean biodiesel production increased 435.7% between 2007 and 2010, rising from 560,000 to 3,000,000 tons. The domestic biodiesel market is mainly controlled by Louis Dreyfus, Eurnekián, Bunge, Aceitera General Deheza, Vicentín, Glencore, and Molinos Río de la Plata [49]. Regarding the chain's final stage, soybean agribusiness currently represents both 70% of the Santa Fe's foreign trade and between the third and the half of Córdoba's exports. Furthermore, soybean means around the tenth, the fifth and the quarter of the exports of Buenos Aires, Entre Ríos, and La Pampa, respectively. Finally, this

value chain represents 25% of the foreign trade of Santiago del Estero and Chaco [50].

port infrastructure of the provinces of Santa Fe, Buenos Aires, Entre Ríos, and Chaco.

**3. Territorial perspective: soybean fever, rural property's concentration,** 

Soybean area's growth and the land's concentration are two phenomenon closely related. In fact, 936 landowners hoarded 35,515,000 hectares in the beginning of the 2000s, whereas 137,021 farmers only gathered 2,288,000 hectares [14]. Moreover, just nine holdings control 32% of rural lands of the province of Buenos Aires. This is because of two factors. On one hand, traditional rural families have joined foreign capitals by complex mechanisms (e.g., trusts, anonymous partnerships, dummies, farms subdivisions, fake sales, etc.) in order to shirk the provincial Treasury [52]. On the other hand, some mega-companies have emerged too, as shown by the cases of both national (e.g., Los Grobo, El Tejar, MSU, etc.) and foreign firms–for instance, Cresud and Adecoagro, belonging to the Hungarian-American tycoon George Soros. According to various

estimations, such mega-companies control an area of 1,500,000 hectares [7, 12].

In addition, it is worthwhile noting that some oil industries and grain traders (e.g., Louis Dreyfus, Bunge, Nidera, Aceitera General Deheza, and Molinos Río de la Plata) have purchase and/or leased large tracts of rural lands for soybean sowing in order to ensure a stable supply of material raw [51]. Furthermore, these agro-industries have created their own storing territorial networks and so have reinforced their control over the circuit's primary stage. The aforementioned firms and others companies (e.g., Vicentín, Cofco, Toepfer, Cargill, ADM, etc.) have carried out forward integration too, specifically toward the logistic and transportation stages. This has been done by using three mechanisms: the purchase of big fleets of trucks, the control of the share capital of some railroads (e.g., The New Central Argentinean Railroad, which belongs to Aceitera General Deheza), and the appropriation of most of the

firms meant 76.1% of oils and 82.4% of flours [48].

**and the new enclosures**

Most of those small- and medium-size farmers who kept their lands finally leased it to extraagricultural origin companies, such as sowing pools and investment funds. These companies include a great variety of firms, such as agronomies, big storing enterprises, input suppliers, banks, insurance companies, managers of retirement and pension funds, isolated investors, rural machinery contractors, agro-industrial companies, agricultural producers, writing desks, and both national and foreign holdings [23]. Although the sowing pools' origin is very diverse, such leasing practices are basically carried out by the financial capital, which resorts to various mechanisms (e.g., trusts, foreign funds capitalizations, stock-exchange organizational forms, local alliances, informal agreements, etc.) to appropriate the rural lands in order to control the accumulation of the chain's primary stage and entering and exiting the commodities market quickly [23, 47]. Currently, 70% of agricultural area of the country has been leased to sowing pools and investment funds [17].

Although all these capitals resort to different mechanisms (e.g., leasing-network firms, patrimonial ownership, purchase of lands by using external capitalization funds, etc.), they develop a common strategy: diversifying agro-weather, economic, political, and legal risks in order to combine high levels of liquidity, rapid returns on initial investment, and big financial and agricultural rents. Thus, such mega-companies obtain lower prices on the inputs supply, impose conditions to the farmers, and influence the prices of the land [47].

As a result, a lot of small- and medium-size farmers have been relegated from the productive circuit, keeping the nominal property of their fields but losing all control over the agricultural practices developed there. Provided the economic rationality of sowing pools is obtaining the highest profit in the short terms, farmers' lands often are super-exploited. Once farmers had regained effective possession of their lands, they face several difficulties in order to reenter the productive circuit due to the loss of fertility, the destruction of soils, and the high economic costs of its reparation. Consequently, farmers use to sell their lands, thus increasing the concentration of rural property in few hands.

Typical agro-industrial backward integration strategies are developed too. Agro-industrial stage of soybean circuit includes the production of flours and oils, as well as the storage and shipment of these products. As the agricultural link, the agro-industrial stage is highly concentrated, both in economic and territorial terms. In fact, 80% of crushing plants are mainly located in the south of Santa Fe, i.e., the biggest port and agro-industrial cluster in the world. As the great crushing capacity of the Argentinean soybean cluster is very similar to the USA and Brazil ones, oil industries feed not only from the national production but the grains imports from Paraguay. Soybean agro-industry has an oligopsony structure, which includes the major grain traders from USA, France, Switzerland, Netherlands, and China (e.g., Cargill, Louis Dreyfus, Glencore, Bunge, Noble, Nidera, and Cofco). However, some big national firms have a significant participation in soybean agribusiness too, such as Oleaginosa Moreno, Aceitera General Deheza, Molinos Cañuelas, Vicentín, and Molinos Río de la Plata. Remarkably, only thirteen companies produced 89% of both soybean flours and oils in 2015, while just eight firms meant 76.1% of oils and 82.4% of flours [48].

identified. Significantly, none of the 10 major soybean provinces lost less than the quarter of rural production units during the analyzed period, except for La Pampa and Salta. In addition, these ten provinces represent 68.8% of the missing farms of the country (95,418 over a total of 138,639). Such reduction was equal to or higher than the national average in almost half of the cases, as demonstrated by Entre Ríos (−32.8%), Córdoba (−33.7%), San Luis (−38.6%), Tucumán (−53.7%), and Buenos Aires (−54.1%). Finally, the four major soybean provinces, i.e., Buenos Aires, Córdoba, Santa Fe, and Entre Ríos, have meant 53.1% of missing units of rural

Most of those small- and medium-size farmers who kept their lands finally leased it to extraagricultural origin companies, such as sowing pools and investment funds. These companies include a great variety of firms, such as agronomies, big storing enterprises, input suppliers, banks, insurance companies, managers of retirement and pension funds, isolated investors, rural machinery contractors, agro-industrial companies, agricultural producers, writing desks, and both national and foreign holdings [23]. Although the sowing pools' origin is very diverse, such leasing practices are basically carried out by the financial capital, which resorts to various mechanisms (e.g., trusts, foreign funds capitalizations, stock-exchange organizational forms, local alliances, informal agreements, etc.) to appropriate the rural lands in order to control the accumulation of the chain's primary stage and entering and exiting the commodities market quickly [23, 47]. Currently, 70% of agricultural area of the country has been

Although all these capitals resort to different mechanisms (e.g., leasing-network firms, patrimonial ownership, purchase of lands by using external capitalization funds, etc.), they develop a common strategy: diversifying agro-weather, economic, political, and legal risks in order to combine high levels of liquidity, rapid returns on initial investment, and big financial and agricultural rents. Thus, such mega-companies obtain lower prices on the inputs supply,

As a result, a lot of small- and medium-size farmers have been relegated from the productive circuit, keeping the nominal property of their fields but losing all control over the agricultural practices developed there. Provided the economic rationality of sowing pools is obtaining the highest profit in the short terms, farmers' lands often are super-exploited. Once farmers had regained effective possession of their lands, they face several difficulties in order to reenter the productive circuit due to the loss of fertility, the destruction of soils, and the high economic costs of its reparation. Consequently, farmers use to sell their lands, thus increasing

Typical agro-industrial backward integration strategies are developed too. Agro-industrial stage of soybean circuit includes the production of flours and oils, as well as the storage and shipment of these products. As the agricultural link, the agro-industrial stage is highly concentrated, both in economic and territorial terms. In fact, 80% of crushing plants are mainly located in the south of Santa Fe, i.e., the biggest port and agro-industrial cluster in the world. As the great crushing capacity of the Argentinean soybean cluster is very similar to the USA and Brazil ones, oil industries feed not only from the national production but the grains imports from Paraguay. Soybean agro-industry has an oligopsony structure, which includes the major

impose conditions to the farmers, and influence the prices of the land [47].

production.

122 Agricultural Value Chain

leased to sowing pools and investment funds [17].

the concentration of rural property in few hands.

Moreover, the corporations aforementioned control two other strategic links of soybean circuit: the biodiesel production and the exports. Owing to both the world agro fuels boom and the growth in European and US markets, the Argentinean biodiesel production increased 435.7% between 2007 and 2010, rising from 560,000 to 3,000,000 tons. The domestic biodiesel market is mainly controlled by Louis Dreyfus, Eurnekián, Bunge, Aceitera General Deheza, Vicentín, Glencore, and Molinos Río de la Plata [49]. Regarding the chain's final stage, soybean agribusiness currently represents both 70% of the Santa Fe's foreign trade and between the third and the half of Córdoba's exports. Furthermore, soybean means around the tenth, the fifth and the quarter of the exports of Buenos Aires, Entre Ríos, and La Pampa, respectively. Finally, this value chain represents 25% of the foreign trade of Santiago del Estero and Chaco [50].

In addition, it is worthwhile noting that some oil industries and grain traders (e.g., Louis Dreyfus, Bunge, Nidera, Aceitera General Deheza, and Molinos Río de la Plata) have purchase and/or leased large tracts of rural lands for soybean sowing in order to ensure a stable supply of material raw [51]. Furthermore, these agro-industries have created their own storing territorial networks and so have reinforced their control over the circuit's primary stage. The aforementioned firms and others companies (e.g., Vicentín, Cofco, Toepfer, Cargill, ADM, etc.) have carried out forward integration too, specifically toward the logistic and transportation stages. This has been done by using three mechanisms: the purchase of big fleets of trucks, the control of the share capital of some railroads (e.g., The New Central Argentinean Railroad, which belongs to Aceitera General Deheza), and the appropriation of most of the port infrastructure of the provinces of Santa Fe, Buenos Aires, Entre Ríos, and Chaco.

### **3. Territorial perspective: soybean fever, rural property's concentration, and the new enclosures**

Soybean area's growth and the land's concentration are two phenomenon closely related. In fact, 936 landowners hoarded 35,515,000 hectares in the beginning of the 2000s, whereas 137,021 farmers only gathered 2,288,000 hectares [14]. Moreover, just nine holdings control 32% of rural lands of the province of Buenos Aires. This is because of two factors. On one hand, traditional rural families have joined foreign capitals by complex mechanisms (e.g., trusts, anonymous partnerships, dummies, farms subdivisions, fake sales, etc.) in order to shirk the provincial Treasury [52]. On the other hand, some mega-companies have emerged too, as shown by the cases of both national (e.g., Los Grobo, El Tejar, MSU, etc.) and foreign firms–for instance, Cresud and Adecoagro, belonging to the Hungarian-American tycoon George Soros. According to various estimations, such mega-companies control an area of 1,500,000 hectares [7, 12].

It is worthwhile noting that both land's concentration and new leasing practices have strongly relied on the soybean's expansion outside the Pampas' core. Operating as the driver of a substantial worsening of rural violence, such phenomenon is clearly associated to the so-called new enclosures, i.e., the silent but relentless cornering process suffered by peasants and aborigines during the last 2 decades [53]. Since the soybean fever encouraged big farmers, landowners, sowing pools, investment funds, and oil industries to expand toward the Pampas' edge and the Argentinean North, new territorial enclosures have risen in such regions. Current legislation both recognizes Aboriginal land rights and ensures the land ownership to those peasants who can prove they have occupied and exploited it during at least 20 years. Nevertheless, the legal precariousness of the land property in various provinces often implies that subaltern groups to be easily overwhelmed by the hegemonic agents of soybean agribusiness.

inside, then vacating and guarding them by using provincial police's special brigades. Such complicity chain includes entrepreneurs, lawyers, notaries, judges, and congressmen too [52,

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**4. Environmental and socio-ecological issues: deforestation, degradation,** 

Silent enclosures and undisguised strategies of violence have been complemented by deforestation. Almost 5 million hectares of native forests were cut down in just 16 years (1998–2014) [59], a figure that means 4.3% of world deforestation, according to the International Panel on Climate Change [57]. In fact, the national annual rates of deforestation fluctuate from 0.49 to 1.31%, i.e., figures 3.5 and even 9.4 times bigger than the world annual averages (0.22 to 0.14%) estimated during the period 1990–2010 [59–62]. Although this serious question led to deforestation was restricted and even banned by the State, illegal logging continues because

Soybean's advance has been the major driver of forest area reduction between 2002 and 2011 [59], as well as an indirect deforestation driver too, though it has expelled traditional productions from its historical cores (e.g., cotton, sugar cane, stockbreeding, etc.). Remarkably, 95.8% of cleared area (4,754,747 hectares) involved provinces that belong to both the soybean core's area and the peripheral regions recently conquered by the soybean's expansion. As shown by **Figure 2**, deforestation map mainly involves soybean provinces, such as Santiago del Estero, Salta, Chaco, Córdoba, Entre Ríos, and Formosa, which concentrate 85.2% of the logged area in the whole country. Moreover, such provinces have substantially exceeded both the national and world averages. For instance, the deforestation rate of the north of Córdoba during the period 1998–2006 was 13 times bigger than the world rate, whereas the Santiago del Estero's logging speed during the period 2006–2014 was 7–19 times bigger than the international average. Finally, Salta is currently known as the "capital of logging." This is because the government uses to modify the regionalization established by the Forests Law in order to satisfy the soybean firms' requirements. In addition, foremen, corporations, and organisms strongly pressure aborigine communities by demanding them to sign deforestation permits or to accept the logging of conservation areas in exchange of water, food, and

Soybean's boom is also one of the major responsibility for the growth of greenhouse gases' emissions, the loss of biodiversity, and the increasing frequency of floods and rockslides in our country. Likewise, soybean is the main crop involved in desertification process, due to the for free-exports of virtual water and essential edaphic resources (e.g., nitrogenous, phosphor, potassium, calcium, magnesium, sulfur, iron, manganese, boron, zinc, molybdenum, chlorine, copper, etc.) [29, 30]. Environmental degradation (specially, deforestation) completes the expulsion of Aborigines by destroying their ethnical, cultural, and socio-economic subsistence matrix. Indigenous population of the Argentinean North was estimated in 900,000 people in the beginning of the 2000s, the half of whom have been condemned by deforestation to begin

55]. Similar practices have been reported in Salta [58].

of the unceasing expansion of the agricultural frontier [57].

**and the health question**

ambulances [57].

According to official data, 857 conflicts on the control of the land were reported in Argentina in 2011, involving 63,843 rural families and an area of 9,293,234 hectares. It is worthwhile noting that 48.5% of these situations were denounced in soybean provinces (e.g., Buenos Aires, Chaco, Córdoba, Entre Ríos, Formosa, La Pampa, Salta, San Luis, Santiago del Estero, and Tucumán) [54]. In addition, unofficial sources claim that land struggles have been increased in the Argentinean North and the Pampas' edge during the last years. In fact, 224 conflicts were reported en 2013, which involved 2,791,302 hectares and 127,886 people. Significantly, 80% of such conflicts started since 2000 [55], i.e., since the soybean's expansion outside the Pampas sped up.

A leafy scholarly literature has reported a wide range of coercion mechanisms used in order to loot and misappropriate the peasants' and aborigines' lands. On one hand, some manipulation and deception strategies allow farmers and indigenous to be evicted without major difficulties (e.g., signing blank documents that actually are lending or eviction agreements) [56, 57]. On the other hand, political and legal power operate as dispossession guarantors by both ordering evictions for indigenous and peasants and accepting the fake companyowned documents as legal. Such support often involves the entire repressive apparatus of the State, from judges and lawyers to congressmen and public forces of security, who grab the rural families' lands to put them under the control of Buenos Aires, Córdoba, Santa Fe, and Tucumán's soybean companies [52, 57].

Finally, dispossession of the land implies nonlegal actions too, even paramilitarization. Physical wounds and even death are the result of territorial struggles unchained by the agribusiness logic [53]. Several strategies are commonly used on this regard, such as *de facto* occupations, even when peasants have got legal documentation that legitimized their land rights, land enclosures and deforestation, and blocking access to roads, grazing areas, and drinking water sources. Furthermore, the so-called white guards, i.e., civilian paid by the soybean producers, intentionally pollute water wells, kill livestock and farm animals and pets, threat farmers, fire ranches, and even murder peasants and aborigines [45]. One of the most affected provinces is Santiago del Estero, where 122 conflicts were reported in 2013, over a total of 224 [55]. The misappropriation of almost 4 million hectares in this province has implied evictions, violations of human rights, and even deaths. Often real states agencies sell lands with its inhabitants inside, then vacating and guarding them by using provincial police's special brigades. Such complicity chain includes entrepreneurs, lawyers, notaries, judges, and congressmen too [52, 55]. Similar practices have been reported in Salta [58].

It is worthwhile noting that both land's concentration and new leasing practices have strongly relied on the soybean's expansion outside the Pampas' core. Operating as the driver of a substantial worsening of rural violence, such phenomenon is clearly associated to the so-called new enclosures, i.e., the silent but relentless cornering process suffered by peasants and aborigines during the last 2 decades [53]. Since the soybean fever encouraged big farmers, landowners, sowing pools, investment funds, and oil industries to expand toward the Pampas' edge and the Argentinean North, new territorial enclosures have risen in such regions. Current legislation both recognizes Aboriginal land rights and ensures the land ownership to those peasants who can prove they have occupied and exploited it during at least 20 years. Nevertheless, the legal precariousness of the land property in various provinces often implies that subaltern groups to be easily overwhelmed by the hegemonic agents of soybean

According to official data, 857 conflicts on the control of the land were reported in Argentina in 2011, involving 63,843 rural families and an area of 9,293,234 hectares. It is worthwhile noting that 48.5% of these situations were denounced in soybean provinces (e.g., Buenos Aires, Chaco, Córdoba, Entre Ríos, Formosa, La Pampa, Salta, San Luis, Santiago del Estero, and Tucumán) [54]. In addition, unofficial sources claim that land struggles have been increased in the Argentinean North and the Pampas' edge during the last years. In fact, 224 conflicts were reported en 2013, which involved 2,791,302 hectares and 127,886 people. Significantly, 80% of such conflicts started since 2000 [55], i.e., since the soybean's expansion outside the

A leafy scholarly literature has reported a wide range of coercion mechanisms used in order to loot and misappropriate the peasants' and aborigines' lands. On one hand, some manipulation and deception strategies allow farmers and indigenous to be evicted without major difficulties (e.g., signing blank documents that actually are lending or eviction agreements) [56, 57]. On the other hand, political and legal power operate as dispossession guarantors by both ordering evictions for indigenous and peasants and accepting the fake companyowned documents as legal. Such support often involves the entire repressive apparatus of the State, from judges and lawyers to congressmen and public forces of security, who grab the rural families' lands to put them under the control of Buenos Aires, Córdoba, Santa Fe, and

Finally, dispossession of the land implies nonlegal actions too, even paramilitarization. Physical wounds and even death are the result of territorial struggles unchained by the agribusiness logic [53]. Several strategies are commonly used on this regard, such as *de facto* occupations, even when peasants have got legal documentation that legitimized their land rights, land enclosures and deforestation, and blocking access to roads, grazing areas, and drinking water sources. Furthermore, the so-called white guards, i.e., civilian paid by the soybean producers, intentionally pollute water wells, kill livestock and farm animals and pets, threat farmers, fire ranches, and even murder peasants and aborigines [45]. One of the most affected provinces is Santiago del Estero, where 122 conflicts were reported in 2013, over a total of 224 [55]. The misappropriation of almost 4 million hectares in this province has implied evictions, violations of human rights, and even deaths. Often real states agencies sell lands with its inhabitants

agribusiness.

124 Agricultural Value Chain

Pampas sped up.

Tucumán's soybean companies [52, 57].

### **4. Environmental and socio-ecological issues: deforestation, degradation, and the health question**

Silent enclosures and undisguised strategies of violence have been complemented by deforestation. Almost 5 million hectares of native forests were cut down in just 16 years (1998–2014) [59], a figure that means 4.3% of world deforestation, according to the International Panel on Climate Change [57]. In fact, the national annual rates of deforestation fluctuate from 0.49 to 1.31%, i.e., figures 3.5 and even 9.4 times bigger than the world annual averages (0.22 to 0.14%) estimated during the period 1990–2010 [59–62]. Although this serious question led to deforestation was restricted and even banned by the State, illegal logging continues because of the unceasing expansion of the agricultural frontier [57].

Soybean's advance has been the major driver of forest area reduction between 2002 and 2011 [59], as well as an indirect deforestation driver too, though it has expelled traditional productions from its historical cores (e.g., cotton, sugar cane, stockbreeding, etc.). Remarkably, 95.8% of cleared area (4,754,747 hectares) involved provinces that belong to both the soybean core's area and the peripheral regions recently conquered by the soybean's expansion. As shown by **Figure 2**, deforestation map mainly involves soybean provinces, such as Santiago del Estero, Salta, Chaco, Córdoba, Entre Ríos, and Formosa, which concentrate 85.2% of the logged area in the whole country. Moreover, such provinces have substantially exceeded both the national and world averages. For instance, the deforestation rate of the north of Córdoba during the period 1998–2006 was 13 times bigger than the world rate, whereas the Santiago del Estero's logging speed during the period 2006–2014 was 7–19 times bigger than the international average. Finally, Salta is currently known as the "capital of logging." This is because the government uses to modify the regionalization established by the Forests Law in order to satisfy the soybean firms' requirements. In addition, foremen, corporations, and organisms strongly pressure aborigine communities by demanding them to sign deforestation permits or to accept the logging of conservation areas in exchange of water, food, and ambulances [57].

Soybean's boom is also one of the major responsibility for the growth of greenhouse gases' emissions, the loss of biodiversity, and the increasing frequency of floods and rockslides in our country. Likewise, soybean is the main crop involved in desertification process, due to the for free-exports of virtual water and essential edaphic resources (e.g., nitrogenous, phosphor, potassium, calcium, magnesium, sulfur, iron, manganese, boron, zinc, molybdenum, chlorine, copper, etc.) [29, 30]. Environmental degradation (specially, deforestation) completes the expulsion of Aborigines by destroying their ethnical, cultural, and socio-economic subsistence matrix. Indigenous population of the Argentinean North was estimated in 900,000 people in the beginning of the 2000s, the half of whom have been condemned by deforestation to begin

According to the Atlas of Childhood's Environmental Risk in Argentina, the most affected departments by the use of pesticides largely matches regions that have been intensely conquered by the soybean monoculture, i.e., center and southeast of Córdoba, south of Santa Fe and Chaco, north of Buenos Aires, much of Santiago del Estero, Tucumán, and Entre Ríos, etc. (**Figure 3**). Soybean, in fact, is the main crop involved in the Pollution by Pesticides Index of the

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Soybean regions' inhabitants have reported a wide range of serious socio-economic, environmental, and health damages due to the aerial and land spraying with agrochemicals and the pollution produced by grain and pesticides' storing plants. Some of these damages have included the hives and horticultural cultivations' destruction, the mortality or/and degenerative disease of poultry and cattle, the pollution of air, soil, and surface and groundwater, and certain health issues (e.g., chronic respiratory diseases, diarrhea, dizziness, cephalalgia, nauseas, vision problems, dermal rashes, hormonal disruptions, and thyroid disorders). Even more serious pathologies have been attributed to the soybean's pattern too, such as hemolytic anemia, rheumatoid arthritis, lupus, purpura, central nervous system damage, Hodgkin's disease, multiple sclerosis, cerebral ischemia, toxic liver diseases, and neurological disorders. Furthermore, other health issues have been reported in the Pampas and the Argentinean North, such as male sterility, births with congenital malformations, mutagenesis, and spontaneous abortions. Finally, even some kinds of cancer (e.g., leukemia, and urogenital, pancreatic, lung, breast, prostate,

**Figure 3.** Environmental risks by exposure to pesticides in Argentina in 2009.

mentioned Atlas [64].

**Figure 2.** Reduction of native forest area in Argentina at departmental level (1998–2014).

big and medium-size cities of the provinces of Santa Fe, Chaco, Formosa, Salta, Misiones, and Buenos Aires [14]. Thickening the extreme misery and poverty's urban belts, such masses of dispossessed often suffer starvation and restricted access to drinking water, as well as high levels of child mortality due to the migration of zoonotic illnesses (e.g., hanta virus, dengue, leishmaniasis, etc.) from the forest to the cities [58].

Another serious implication of soybean agribusiness is the health issue caused by the massive fumigations with agrochemicals. National agrochemical consumption has exponentially grown since the introduction of transgenic soybean and its technological package, climbing from 39 liters in 1991 to 335 million of liters in 2012. While in other countries the use of agrochemicals does not use to exceed 3 liters per hectare, the national average is 12 liters per hectare, reaching peaks of 20 liters in Santiago del Estero and Chaco. Such values would imply that each Argentinean inhabitant is exposed to a dose of 8 liters of agrochemicals, whereas this figure would oscillate from 30 to 60 liters per capita in the soybean regions [63]. Soybean agrochemicals' package includes glyphosate of ammonium and other global-action herbicides, insecticides, and fungicides, such as cypermethrin, chlorpyrifos, paraquat, glufosinate of ammonium, bromoxynil, malathion, 2,4-D, endosulfan, hexachlorobenzene, heptachlor, and atrazina. It is worthwhile noting that the last five agrochemicals mentioned above have been banned or restricted in several countries, whereas glyphosate of ammonium has been classified as "probably carcinogenic" by the World Health Organization in 2015.

According to the Atlas of Childhood's Environmental Risk in Argentina, the most affected departments by the use of pesticides largely matches regions that have been intensely conquered by the soybean monoculture, i.e., center and southeast of Córdoba, south of Santa Fe and Chaco, north of Buenos Aires, much of Santiago del Estero, Tucumán, and Entre Ríos, etc. (**Figure 3**). Soybean, in fact, is the main crop involved in the Pollution by Pesticides Index of the mentioned Atlas [64].

Soybean regions' inhabitants have reported a wide range of serious socio-economic, environmental, and health damages due to the aerial and land spraying with agrochemicals and the pollution produced by grain and pesticides' storing plants. Some of these damages have included the hives and horticultural cultivations' destruction, the mortality or/and degenerative disease of poultry and cattle, the pollution of air, soil, and surface and groundwater, and certain health issues (e.g., chronic respiratory diseases, diarrhea, dizziness, cephalalgia, nauseas, vision problems, dermal rashes, hormonal disruptions, and thyroid disorders). Even more serious pathologies have been attributed to the soybean's pattern too, such as hemolytic anemia, rheumatoid arthritis, lupus, purpura, central nervous system damage, Hodgkin's disease, multiple sclerosis, cerebral ischemia, toxic liver diseases, and neurological disorders. Furthermore, other health issues have been reported in the Pampas and the Argentinean North, such as male sterility, births with congenital malformations, mutagenesis, and spontaneous abortions. Finally, even some kinds of cancer (e.g., leukemia, and urogenital, pancreatic, lung, breast, prostate,

**Figure 3.** Environmental risks by exposure to pesticides in Argentina in 2009.

big and medium-size cities of the provinces of Santa Fe, Chaco, Formosa, Salta, Misiones, and Buenos Aires [14]. Thickening the extreme misery and poverty's urban belts, such masses of dispossessed often suffer starvation and restricted access to drinking water, as well as high levels of child mortality due to the migration of zoonotic illnesses (e.g., hanta virus, dengue,

Another serious implication of soybean agribusiness is the health issue caused by the massive fumigations with agrochemicals. National agrochemical consumption has exponentially grown since the introduction of transgenic soybean and its technological package, climbing from 39 liters in 1991 to 335 million of liters in 2012. While in other countries the use of agrochemicals does not use to exceed 3 liters per hectare, the national average is 12 liters per hectare, reaching peaks of 20 liters in Santiago del Estero and Chaco. Such values would imply that each Argentinean inhabitant is exposed to a dose of 8 liters of agrochemicals, whereas this figure would oscillate from 30 to 60 liters per capita in the soybean regions [63]. Soybean agrochemicals' package includes glyphosate of ammonium and other global-action herbicides, insecticides, and fungicides, such as cypermethrin, chlorpyrifos, paraquat, glufosinate of ammonium, bromoxynil, malathion, 2,4-D, endosulfan, hexachlorobenzene, heptachlor, and atrazina. It is worthwhile noting that the last five agrochemicals mentioned above have been banned or restricted in several countries, whereas glyphosate of ammonium has been

classified as "probably carcinogenic" by the World Health Organization in 2015.

leishmaniasis, etc.) from the forest to the cities [58].

126 Agricultural Value Chain

**Figure 2.** Reduction of native forest area in Argentina at departmental level (1998–2014).

stomach, and liver cancers) have spread among the rural workers and the people living near crops and storing plants. Importantly, in soybean regions both the malformations and cancer's incidence is 2 to 10 times bigger than the national and urban averages [57, 63, 65].

Likewise, the Argentinean agrochemical market brings a return of 2.5 billion dollars per year to the companies, 64% of which corresponds to glyphosate of ammonium [63]. Although such pesticide is sold not only by Monsanto, but other companies too (e.g., Syngenta, Basf, Bayer, DuPont, Dow AgroSciences, Nidera, Atanor, La Tijereta, etc.) [67], the US corporation is the one who appropriates the most part of the bulky profits generated by the sale of glyphosate. Finally, Monsanto is the Cargill's share capital owner, thus controlling a large part of the

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In the beginning of the Argentinean transgenic soy boom Monsanto did not strive to directly benefit from the sale of the RR seed, but focused its attention in the marketing of glyphosate [12]. As a consequence, farmers started to develop practices legally recognized by both the national legislation and the FAO's Phytogenetic Agreement, such as using the seed free of charge, sharing it with other producers, multiplying it, and even selling and/or saving it for later re-sowing. Nonetheless, Nidera and other license companies obtained in 1999, the government approval to impose an "extended royalties" system. According to that system, when farmers acquire the RR soybean seed automatically sign a contract that not only impedes them saving and/or sharing their harvest, but forces them to pay 2 dollars (plus taxes) for each 50 kilograms-bag of certified

Since such contract meant a noticeable transgression to the Argentinean Seeds Law, the extended royalties system was very resisted by the soybean producers, as well as avoided by various mechanisms. As a result, in the beginning of the 2000s, the use of certified seeds represented less than 18% of the soybean planted [66]. However, Monsanto only start the relevant formal claims when the spread of its transgenic soy in the country was absolute, its Magnum Network was already consolidated [12], and the allegedly "clandestine" practices of Argentinean farmers had favored it with the dissemination of the RR soy in Paraguay, Brazil, and Bolivia, i.e., countries where transgenic crops were still banned [66]. By using the pretext that farmers had violated the legal security of the seed industry and injured their intellectual property rights, the US company begun to deploy different mechanisms of pressure and lob-

Monsanto's first strategy was activating the royalties payment by the soybean marketed in Argentina. Due to the failure of this tactic, Monsanto asked for national government to sanction a "global royalties' law." Such law should create a Technological Compensation Fund oriented for collecting an aliquot that fluctuated 0.35–0.95% of selling price of soybean and lately distributing such resources among the seed companies [15]. Since the bitter resistance of large farmers determined the unfeasibility of the legislative project, Monsanto implemented other measures in 2005. By demanding a much higher fee (15% per ton) than the traditional royalty, the US company initiated litigations against Argentina in international courts and temporarily abandoned the commercialization of soybeans in the country [66]. Moreover, Monsanto fomented export blockades, achieved that European courts stopped and confiscated ships loaded with Argentinean soybean in the Old Continent's ports, and soughed the support of congressmen, ambassadors, and politicians of the US government [57]. Although Monsanto possesses the monopoly on RR soy at world scale, such right is not valid in Argentina, since

seeds they keep for planting in the following agricultural year [15].

bying on the Argentinean government [15].

the company never patented the transgenic event there [66].

agro-industrial stage [24].

### **5. Political implications: seed and agrochemical companies, farmers' autonomy, and legal and food sovereignty**

Despite the networks paradigm would seem to hide deep inequalities among the different agribusiness' agents and links, transnational corporations actually controls the whole global value chains by defining both the general parameters of the agro-industrial system and commanding the technological innovation's diffusion. During the last 20 years, the so-called transgenic revolution encouraged seed companies to develop a complex mergers and acquisitions process, which involved agrochemical and even pharmaceutical firms too. Owing to such oligopoly structure, a handful of corporations (Monsanto, DuPont, Dow Agrochemical, Bayer, Basf, Aventis, and Syngenta) control 100% of transgenic seeds market and 97.8% of agrochemical market at world scale [14, 26].

Such concentration of power allows companies to appropriate the so-called life's rent [45] and to deploy several subordination and dependence mechanisms by applying owner rights on seeds (e.g., patents, licenses, etc.) and creating new biotech packages (e.g., when a novel seed's genetic feature and an agrochemical input are combined, patented, and sold by the same company). As a consequence, farmers are prevented from easily reproducing the new seeds and forced to acquire certain pesticides and fertilizers, thus losing all the control over the first chain's link and becoming a captive market (simple germplasm's leaseholders) for the companies [14, 26].

Such is the case of the Argentinean soybean agribusiness, which are based on two inputs patented and marketed by Monsanto at world scale: the RR glyphosate-resistant soy and the glyphosate of ammonium. However, since the government approval of this crop variety only occurred in 1996, the initial, fast expansion of the new seed during the earlier years of soybean boom was due to genetic smuggling and clandestine plantations, two phenomenon actively encouraged by Monsanto [66]. As a consequence, nowadays 99.1% of the soybean planted in Argentina is transgenic [7].

From the mid-1990s onwards Monsanto has became the main agent of the whole soybean accumulation chain by using different mechanisms. On one hand, the US corporation controls both seed and agrochemical markets under almost monopolistic conditions. For instance, Nidera, the leading company of the Argentinean Seeders Association (ASA), operates as a Monsanto's license firm by marketing transgenic soybean seeds belonging to this US company [14]. Such situation has been reinforced by the Magnum Network, a system created by Monsanto in 1998 that imposes an exclusivity contract on agronomies. Owing to that exclusivity contract, agronomies cannot sell seeds of competitor firms and must accept both to adopt direct billing conditions and to provide detailed customer information by using a management system directly connected to Monsanto's sales and marketing management [12].

Likewise, the Argentinean agrochemical market brings a return of 2.5 billion dollars per year to the companies, 64% of which corresponds to glyphosate of ammonium [63]. Although such pesticide is sold not only by Monsanto, but other companies too (e.g., Syngenta, Basf, Bayer, DuPont, Dow AgroSciences, Nidera, Atanor, La Tijereta, etc.) [67], the US corporation is the one who appropriates the most part of the bulky profits generated by the sale of glyphosate. Finally, Monsanto is the Cargill's share capital owner, thus controlling a large part of the agro-industrial stage [24].

stomach, and liver cancers) have spread among the rural workers and the people living near crops and storing plants. Importantly, in soybean regions both the malformations and cancer's

Despite the networks paradigm would seem to hide deep inequalities among the different agribusiness' agents and links, transnational corporations actually controls the whole global value chains by defining both the general parameters of the agro-industrial system and commanding the technological innovation's diffusion. During the last 20 years, the so-called transgenic revolution encouraged seed companies to develop a complex mergers and acquisitions process, which involved agrochemical and even pharmaceutical firms too. Owing to such oligopoly structure, a handful of corporations (Monsanto, DuPont, Dow Agrochemical, Bayer, Basf, Aventis, and Syngenta) control 100% of transgenic seeds market and 97.8% of

Such concentration of power allows companies to appropriate the so-called life's rent [45] and to deploy several subordination and dependence mechanisms by applying owner rights on seeds (e.g., patents, licenses, etc.) and creating new biotech packages (e.g., when a novel seed's genetic feature and an agrochemical input are combined, patented, and sold by the same company). As a consequence, farmers are prevented from easily reproducing the new seeds and forced to acquire certain pesticides and fertilizers, thus losing all the control over the first chain's link and becoming a captive market (simple germplasm's leaseholders) for the

Such is the case of the Argentinean soybean agribusiness, which are based on two inputs patented and marketed by Monsanto at world scale: the RR glyphosate-resistant soy and the glyphosate of ammonium. However, since the government approval of this crop variety only occurred in 1996, the initial, fast expansion of the new seed during the earlier years of soybean boom was due to genetic smuggling and clandestine plantations, two phenomenon actively encouraged by Monsanto [66]. As a consequence, nowadays 99.1% of the soybean planted in Argentina is

From the mid-1990s onwards Monsanto has became the main agent of the whole soybean accumulation chain by using different mechanisms. On one hand, the US corporation controls both seed and agrochemical markets under almost monopolistic conditions. For instance, Nidera, the leading company of the Argentinean Seeders Association (ASA), operates as a Monsanto's license firm by marketing transgenic soybean seeds belonging to this US company [14]. Such situation has been reinforced by the Magnum Network, a system created by Monsanto in 1998 that imposes an exclusivity contract on agronomies. Owing to that exclusivity contract, agronomies cannot sell seeds of competitor firms and must accept both to adopt direct billing conditions and to provide detailed customer information by using a management system

directly connected to Monsanto's sales and marketing management [12].

incidence is 2 to 10 times bigger than the national and urban averages [57, 63, 65].

**autonomy, and legal and food sovereignty**

agrochemical market at world scale [14, 26].

companies [14, 26].

128 Agricultural Value Chain

transgenic [7].

**5. Political implications: seed and agrochemical companies, farmers'** 

In the beginning of the Argentinean transgenic soy boom Monsanto did not strive to directly benefit from the sale of the RR seed, but focused its attention in the marketing of glyphosate [12]. As a consequence, farmers started to develop practices legally recognized by both the national legislation and the FAO's Phytogenetic Agreement, such as using the seed free of charge, sharing it with other producers, multiplying it, and even selling and/or saving it for later re-sowing. Nonetheless, Nidera and other license companies obtained in 1999, the government approval to impose an "extended royalties" system. According to that system, when farmers acquire the RR soybean seed automatically sign a contract that not only impedes them saving and/or sharing their harvest, but forces them to pay 2 dollars (plus taxes) for each 50 kilograms-bag of certified seeds they keep for planting in the following agricultural year [15].

Since such contract meant a noticeable transgression to the Argentinean Seeds Law, the extended royalties system was very resisted by the soybean producers, as well as avoided by various mechanisms. As a result, in the beginning of the 2000s, the use of certified seeds represented less than 18% of the soybean planted [66]. However, Monsanto only start the relevant formal claims when the spread of its transgenic soy in the country was absolute, its Magnum Network was already consolidated [12], and the allegedly "clandestine" practices of Argentinean farmers had favored it with the dissemination of the RR soy in Paraguay, Brazil, and Bolivia, i.e., countries where transgenic crops were still banned [66]. By using the pretext that farmers had violated the legal security of the seed industry and injured their intellectual property rights, the US company begun to deploy different mechanisms of pressure and lobbying on the Argentinean government [15].

Monsanto's first strategy was activating the royalties payment by the soybean marketed in Argentina. Due to the failure of this tactic, Monsanto asked for national government to sanction a "global royalties' law." Such law should create a Technological Compensation Fund oriented for collecting an aliquot that fluctuated 0.35–0.95% of selling price of soybean and lately distributing such resources among the seed companies [15]. Since the bitter resistance of large farmers determined the unfeasibility of the legislative project, Monsanto implemented other measures in 2005. By demanding a much higher fee (15% per ton) than the traditional royalty, the US company initiated litigations against Argentina in international courts and temporarily abandoned the commercialization of soybeans in the country [66]. Moreover, Monsanto fomented export blockades, achieved that European courts stopped and confiscated ships loaded with Argentinean soybean in the Old Continent's ports, and soughed the support of congressmen, ambassadors, and politicians of the US government [57]. Although Monsanto possesses the monopoly on RR soy at world scale, such right is not valid in Argentina, since the company never patented the transgenic event there [66].

Owing to the poor results obtained by these strategies, Monsanto introduced another mechanism of coercion: controlling the later diffusion of technological change. In 2012, the US corporation patented the RR2 Intacta Pro soybean, which is not only tolerant to glyphosate (like the conventional RR variety), but also has the Bt gene–it is resistant to some insect pests. Nevertheless, Monsanto conditioned the commercialization of the new transgenic event to the production of legal frameworks (both public and private) functional to its interests. In fact, the company stipulated that its new soybean could only be acquired by those farmers who previously signed a license agreement and expressly agreed to pay "extended royalties" at the time of purchase [57].

cost, thus reinforcing its control over the productive circuit's primary stage. Moreover, these companies have expanded to other chain' stages, such as producing biodiesel and command-

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Owing to the strategies of both accumulation cores, rural property is more and more concentrated in few hands, thus eroding the small and medium-sized farmer's autonomy. Importantly, such phenomenon is linked, likewise, to the production of the new territorial enclosures in the Pampas' edge and the Argentinean north. Deceptions and manipulations, usurpations and evictions, blockades and repression, intimidation and assassinations are the spurious practices deployed by agro-industries, landowners and sowing pools in order to grab lands and push aborigines and peasants to move to the urban belts of poverty and misery. In addition, soybean production not only leaves a wake of environmental destruction (e.g., deforestation, loss of biodiversity, free exports of soil and virtual water, desertification, etc.), but is also responsible for an even more perturbing question: the considerable amount of serious sanitary damages suffered by the population near cultivations, plants, and silos, due to the aerial and terrestrial spraying with pesticides and the agro-industrial pollution. As the State captures a substantial part of the bulky soybean income by collecting exports taxes, it operates as silent witnesses (even a guarantor) of such processes of subjugation and devastation.

Finally, the third accumulation core is the transnational seed and agrochemical industry. Operating behind the shadows, this industry remotely commands -both technically and politically- the whole soybean agribusiness by using a myriad of mechanisms (e.g., networks of license firms, technological change's diffusion, ownership of one of the main grain traders in the world, intellectual property royalties' claims, political power, etc.). Such accumulation strategies have not only led to the growth of the farmers' dependence and the loss of legal and food sovereignty but have created a buried chain of subordination and exploitation that even affects one of the circuit's accumulation cores -the large agricultural producers-, thus generating harsh conflicts of power on the distribution of profits. Interestingly, political control and economic surplus of the soybean chain precisely accumulate in the stages (seed and agrochemical companies, oil and flour industries), which least contribute to the generation of

To sum up, all the implications aforementioned (alike the activity's small incidence on the employment's generation) suggest that the soybean value chain should be considered as an

Institute of Geography, History and Social Sciences, National Council of Scientific and Technical Research, National University of the Center of the Province of Buenos Aires,

value −8 and 10%, respectively, against 73% of primary production [41].

irrational use of territory for most of national society.

Sebastián Gómez Lende\* and Guillermo Velázquez

\*Address all correspondence to: gomezlen@fch.unicen.edu.ar

**Author details**

Tandil, Argentina

ing both the transportation and the foreign trade flows.

As such system was much resisted by the soybean producers, in 2016 the National State finally decided to regulate the seed market and operate as a guarantor of the Monsanto's intellectual property rights. On the one hand, the government confirmed the validity of the contracts previously signed between the company and the farmers. On the other hand, the State determined that the control of the origin (legal or illegal) of the seed should be carried out by the National Seed Institute (INASE). If the RR2 soybean's origin is illegal, INASE will apply sanctions and allow the seed companies to make payment claims to producers, around 12 dollars per ton [68]. Finally, this situation would be reinforced by the imminent sanction of a new law of seeds, which will establish that only small farmers will be able to keep seeds for free for later use, whereas larger farmers will be forced to tax companies.

### **6. Conclusions**

Since accumulation chains reveal the spatiality of a cycle of rotation and reproduction of capital, the Argentinean soybean agribusiness provides a vast, exhaustive variety of empirical examples regarding the different conflicts and mechanisms of domination and subordination developed both inside and outside the agricultural-based production circuits. Undoubtedly, soybean fever has introduced a historical breakpoint in the evolution of the national rural sector and so has created an insoluble paradox: the more soybean boom expands–thus capping more than half of the grain area and beating harvest records from year to year, the greater the reduction of the amount of farms is.

Three accumulation cores may be identified within the soybean chain. The first corresponds to a primary stage's privileged stratum: the large agricultural production units. Nonetheless, the boundaries between this sector and the rest of the agribusiness' links are diluted due to the rising of an unprecedented phenomenon: the enormous weight acquired in primary production by both extra-agricultural agents and the tenants of fields (and not by their owners, as was usual). Such is the case of soybean sowing pools, i.e., conglomerates where different capitalist factions converge and overlap, combining the new leasing practices and the typical strategies of purchasing of lands.

Second soybean chain's accumulation core is the oil and flour industry, a link characterized by high levels of concentration and foreignization. Such agro-industry has intensely developed several strategies of backward and forward integration. For instance, oil firms have acquired and/or leased of vast tracts of land in order to ensure a stable supply of raw material at low cost, thus reinforcing its control over the productive circuit's primary stage. Moreover, these companies have expanded to other chain' stages, such as producing biodiesel and commanding both the transportation and the foreign trade flows.

Owing to the strategies of both accumulation cores, rural property is more and more concentrated in few hands, thus eroding the small and medium-sized farmer's autonomy. Importantly, such phenomenon is linked, likewise, to the production of the new territorial enclosures in the Pampas' edge and the Argentinean north. Deceptions and manipulations, usurpations and evictions, blockades and repression, intimidation and assassinations are the spurious practices deployed by agro-industries, landowners and sowing pools in order to grab lands and push aborigines and peasants to move to the urban belts of poverty and misery. In addition, soybean production not only leaves a wake of environmental destruction (e.g., deforestation, loss of biodiversity, free exports of soil and virtual water, desertification, etc.), but is also responsible for an even more perturbing question: the considerable amount of serious sanitary damages suffered by the population near cultivations, plants, and silos, due to the aerial and terrestrial spraying with pesticides and the agro-industrial pollution. As the State captures a substantial part of the bulky soybean income by collecting exports taxes, it operates as silent witnesses (even a guarantor) of such processes of subjugation and devastation.

Finally, the third accumulation core is the transnational seed and agrochemical industry. Operating behind the shadows, this industry remotely commands -both technically and politically- the whole soybean agribusiness by using a myriad of mechanisms (e.g., networks of license firms, technological change's diffusion, ownership of one of the main grain traders in the world, intellectual property royalties' claims, political power, etc.). Such accumulation strategies have not only led to the growth of the farmers' dependence and the loss of legal and food sovereignty but have created a buried chain of subordination and exploitation that even affects one of the circuit's accumulation cores -the large agricultural producers-, thus generating harsh conflicts of power on the distribution of profits. Interestingly, political control and economic surplus of the soybean chain precisely accumulate in the stages (seed and agrochemical companies, oil and flour industries), which least contribute to the generation of value −8 and 10%, respectively, against 73% of primary production [41].

To sum up, all the implications aforementioned (alike the activity's small incidence on the employment's generation) suggest that the soybean value chain should be considered as an irrational use of territory for most of national society.

## **Author details**

Owing to the poor results obtained by these strategies, Monsanto introduced another mechanism of coercion: controlling the later diffusion of technological change. In 2012, the US corporation patented the RR2 Intacta Pro soybean, which is not only tolerant to glyphosate (like the conventional RR variety), but also has the Bt gene–it is resistant to some insect pests. Nevertheless, Monsanto conditioned the commercialization of the new transgenic event to the production of legal frameworks (both public and private) functional to its interests. In fact, the company stipulated that its new soybean could only be acquired by those farmers who previously signed a license agreement and expressly agreed to pay "extended royalties" at the time of purchase [57]. As such system was much resisted by the soybean producers, in 2016 the National State finally decided to regulate the seed market and operate as a guarantor of the Monsanto's intellectual property rights. On the one hand, the government confirmed the validity of the contracts previously signed between the company and the farmers. On the other hand, the State determined that the control of the origin (legal or illegal) of the seed should be carried out by the National Seed Institute (INASE). If the RR2 soybean's origin is illegal, INASE will apply sanctions and allow the seed companies to make payment claims to producers, around 12 dollars per ton [68]. Finally, this situation would be reinforced by the imminent sanction of a new law of seeds, which will establish that only small farmers will be able to keep seeds for

free for later use, whereas larger farmers will be forced to tax companies.

Since accumulation chains reveal the spatiality of a cycle of rotation and reproduction of capital, the Argentinean soybean agribusiness provides a vast, exhaustive variety of empirical examples regarding the different conflicts and mechanisms of domination and subordination developed both inside and outside the agricultural-based production circuits. Undoubtedly, soybean fever has introduced a historical breakpoint in the evolution of the national rural sector and so has created an insoluble paradox: the more soybean boom expands–thus capping more than half of the grain area and beating harvest records from year to year, the greater the

Three accumulation cores may be identified within the soybean chain. The first corresponds to a primary stage's privileged stratum: the large agricultural production units. Nonetheless, the boundaries between this sector and the rest of the agribusiness' links are diluted due to the rising of an unprecedented phenomenon: the enormous weight acquired in primary production by both extra-agricultural agents and the tenants of fields (and not by their owners, as was usual). Such is the case of soybean sowing pools, i.e., conglomerates where different capitalist factions converge and overlap, combining the new leasing practices and the typical

Second soybean chain's accumulation core is the oil and flour industry, a link characterized by high levels of concentration and foreignization. Such agro-industry has intensely developed several strategies of backward and forward integration. For instance, oil firms have acquired and/or leased of vast tracts of land in order to ensure a stable supply of raw material at low

**6. Conclusions**

130 Agricultural Value Chain

reduction of the amount of farms is.

strategies of purchasing of lands.

Sebastián Gómez Lende\* and Guillermo Velázquez

\*Address all correspondence to: gomezlen@fch.unicen.edu.ar

Institute of Geography, History and Social Sciences, National Council of Scientific and Technical Research, National University of the Center of the Province of Buenos Aires, Tandil, Argentina

### **References**

[1] Santos M, Silveira ML. O Brasil. Território e sociedade no início do século XXI. Rio de Janeiro-São Paulo: Record; 2001. 471 p

[15] Teubal M. La expansión del modelo sojero en Argentina. De la producción de alimentos

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**Section 4**

**AVC and Market Integration**


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conflicto-con-monsanto

**Chapter 8**

**Provisional chapter**

**Agricultural Market Integration in the Commonwealth**

Utilizing a price transmission approach, we focus on price relationships between the countries of the Commonwealth of Independent States (CIS) and how price changes on the world agricultural market are transmitted to the domestic CIS markets. In this study, we establish a unique price data set on five different agricultural products (i.e. wheat, pork, beef, poultry and whole milk powder) observed in eight different CIS countries. The results of the price transmission analysis indicate that regional integration within the CIS is strongest for pork and beef, followed by poultry and whole milk powder. The integration of CIS markets in world agricultural markets is strongest for wheat and beef, whereas it is relatively low for pork and poultry. Furthermore, beef markets in the CIS countries are the strongest integrated within the region, with the EU and the world market. Overall, our results indicate that domestic market support and trade policies, physical trade flows between countries, infrastructure, and bilateral or multilateral trade agreements play a key role in market integration of the CIS countries. These determinants should be particularly considered when designing recommendations for improving agri-

**Agricultural Market Integration in the Commonwealth** 

DOI: 10.5772/intechopen.69869

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution,

© 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use,

distribution, and reproduction in any medium, provided the original work is properly cited.

and reproduction in any medium, provided the original work is properly cited.

With quickly changing market structures of the Commonwealth of Independent States (CIS) (from centrally planned economies to open markets), privatization and concentration of supply

**of Independent States: What Are the Main Driving**

**of Independent States: What Are the Main Driving** 

**Forces and Challenges?**

**Forces and Challenges?**

http://dx.doi.org/10.5772/intechopen.69869

Thomas Glauben

**Abstract**

**1. Introduction**

and Thomas Glauben

Ivan Djuric, Linde Götz, Miranda Svanidze and

Ivan Djuric, Linde Götz, Miranda Svanidze

Additional information is available at the end of the chapter

food supply chain competitiveness in the CIS countries.

**Keywords:** CIS, agricultural markets, market integration, price transmission

Additional information is available at the end of the chapter

**Provisional chapter**

### **Agricultural Market Integration in the Commonwealth of Independent States: What Are the Main Driving Forces and Challenges? of Independent States: What Are the Main Driving Forces and Challenges?**

**Agricultural Market Integration in the Commonwealth** 

DOI: 10.5772/intechopen.69869

Ivan Djuric, Linde Götz, Miranda Svanidze and Thomas Glauben and Thomas Glauben Additional information is available at the end of the chapter

Ivan Djuric, Linde Götz, Miranda Svanidze

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.69869

#### **Abstract**

Utilizing a price transmission approach, we focus on price relationships between the countries of the Commonwealth of Independent States (CIS) and how price changes on the world agricultural market are transmitted to the domestic CIS markets. In this study, we establish a unique price data set on five different agricultural products (i.e. wheat, pork, beef, poultry and whole milk powder) observed in eight different CIS countries. The results of the price transmission analysis indicate that regional integration within the CIS is strongest for pork and beef, followed by poultry and whole milk powder. The integration of CIS markets in world agricultural markets is strongest for wheat and beef, whereas it is relatively low for pork and poultry. Furthermore, beef markets in the CIS countries are the strongest integrated within the region, with the EU and the world market. Overall, our results indicate that domestic market support and trade policies, physical trade flows between countries, infrastructure, and bilateral or multilateral trade agreements play a key role in market integration of the CIS countries. These determinants should be particularly considered when designing recommendations for improving agrifood supply chain competitiveness in the CIS countries.

**Keywords:** CIS, agricultural markets, market integration, price transmission

### **1. Introduction**

With quickly changing market structures of the Commonwealth of Independent States (CIS) (from centrally planned economies to open markets), privatization and concentration of supply

Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons

chain actors (especially in the processing and retailing sectors), an understanding of market functioning has drawn considerable attention by the general public (consumers), market players (supply chain members), and policy makers.

transmitted to the other regions inducing interregional trade flows when price differences exceed trade costs [2]. Also, regional prices differ at most by the costs of trade between those regions (Law of One Price), and profitable opportunities for trade arbitrage do not persist. Further, an efficient market is characterized by adequate trade costs, which are determined by many factors, e.g., distance to other markets, quality and quantity of transport and communication infrastructure, corruption, market risk, and legal barriers as phytosanitary license

Agricultural Market Integration in the Commonwealth of Independent States: What Are the...

We investigate agricultural supply chains in countries of the former Soviet Union which

exports. Thus, we follow a comparative approach including five different agricultural commodities (i.e., wheat, pork, beef, poultry, and milk) and eight countries of the CIS region (i.e., Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, Russia, and Ukraine). To allow comparability, we apply a uniform method to the comparable sample of data of the same frequency and period of analysis. Data availability on agricultural prices in the CIS countries is very limited which explains the existence of a research gap. Among the few exceptions are Ref. [4] on Georgian bread, sugar, beef and pork markets, and Ref. [5] on the wheat flour

The remainder of this chapter is organized as follows: in Section 2, we present our methodological approach and the data used in our analysis. Section 3 presents the agricultural trade characteristics of the CIS countries. Empirical results are presented in Section 4, while the primary determinants of market integration are discussed in Section 5. Conclusions are drawn

We analyze spatial transmission of different agricultural and food prices between various CIS countries and between CIS countries and the world market. Specifically, we focus on wheat, meat (beef, pork, and poultry), and milk in eight CIS countries in the region. An overview on

We analyze on the integration of agricultural markets in CIS countries with their regional trade partners within the CIS region but also with the EU market and the world market. We evaluate the integration of domestic CIS markets with the export markets in other CIS countries within the region. We also examine how price changes from the EU market and international markets

Focusing on the bivariate price transmission model, we characterize long-run dynamics between price pairs consisting of a domestic price of one of the CIS countries and a world

by agricultural imports and

http://dx.doi.org/10.5772/intechopen.69869

141

are linked to neighboring countries or even the world market1

**2. Methodological approach and data**

the countries included in our analysis is presented in Appendix.

are transmitted to the domestic markets in the CIS region.

We use "world market" and "international market" interchangeably in this article.

and inspection requirements [3].

market in Georgia.

in Section 6.

1

Recent global agricultural price fluctuations, so called "commodity price peaks" together with geopolitical developments, e.g., creation of the Eurasian Economic Union in May 2014, and its enlargement since January 2015, and the Russian agricultural import ban imposed in August 2014, considerably affected trade relations of the Former Soviet Union/CIS countries not only within the region but also with the rest of the world and had significant effects on the domestic food prices. All these developments put food prices at the top of political agendas around the world and especially in CIS countries. While an extreme increase in commodity prices usually represents a trigger for a surge in consumer prices, commodity price falls are not necessarily reflected in immediate decreases in consumer prices. Thus, understanding the price transmission mechanisms along the supply chain (i.e., between different members of the supply chain) is crucial for setting an adequate agricultural policy which will allow most market participants to benefit from a sustainable distribution of value added along the supply chain [1].

Agricultural supply chains link agricultural producers with food end consumers via the processing food industry and the food-distributing retailers (**Figure 1**). This study focuses on the supply chain stage of agricultural production of the farmers. Following a price transmission approach, we investigate market integration and efficiency in agricultural supply chains in the CIS countries. To what degree are price shocks transmitted between the regions and from the world market to the domestic markets? Well-functioning and efficient markets are characterized by strong integration, which could contribute to cushion priceincreasing effects of regional production shortfalls and prevent that prices increase beyond world market prices.

Generally, a unique concept of market integration and efficiency does not exist [2]. In this chapter, we assume that a well-functioning market is a spatially efficient market which is characterized by strong market integration. Thus, price shocks in one region are quickly

**Figure 1.** Research scope. Source: own illustration.

transmitted to the other regions inducing interregional trade flows when price differences exceed trade costs [2]. Also, regional prices differ at most by the costs of trade between those regions (Law of One Price), and profitable opportunities for trade arbitrage do not persist. Further, an efficient market is characterized by adequate trade costs, which are determined by many factors, e.g., distance to other markets, quality and quantity of transport and communication infrastructure, corruption, market risk, and legal barriers as phytosanitary license and inspection requirements [3].

We investigate agricultural supply chains in countries of the former Soviet Union which are linked to neighboring countries or even the world market1 by agricultural imports and exports. Thus, we follow a comparative approach including five different agricultural commodities (i.e., wheat, pork, beef, poultry, and milk) and eight countries of the CIS region (i.e., Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, Russia, and Ukraine). To allow comparability, we apply a uniform method to the comparable sample of data of the same frequency and period of analysis. Data availability on agricultural prices in the CIS countries is very limited which explains the existence of a research gap. Among the few exceptions are Ref. [4] on Georgian bread, sugar, beef and pork markets, and Ref. [5] on the wheat flour market in Georgia.

The remainder of this chapter is organized as follows: in Section 2, we present our methodological approach and the data used in our analysis. Section 3 presents the agricultural trade characteristics of the CIS countries. Empirical results are presented in Section 4, while the primary determinants of market integration are discussed in Section 5. Conclusions are drawn in Section 6.

## **2. Methodological approach and data**

chain actors (especially in the processing and retailing sectors), an understanding of market functioning has drawn considerable attention by the general public (consumers), market play-

Recent global agricultural price fluctuations, so called "commodity price peaks" together with geopolitical developments, e.g., creation of the Eurasian Economic Union in May 2014, and its enlargement since January 2015, and the Russian agricultural import ban imposed in August 2014, considerably affected trade relations of the Former Soviet Union/CIS countries not only within the region but also with the rest of the world and had significant effects on the domestic food prices. All these developments put food prices at the top of political agendas around the world and especially in CIS countries. While an extreme increase in commodity prices usually represents a trigger for a surge in consumer prices, commodity price falls are not necessarily reflected in immediate decreases in consumer prices. Thus, understanding the price transmission mechanisms along the supply chain (i.e., between different members of the supply chain) is crucial for setting an adequate agricultural policy which will allow most market participants to benefit from a sustainable distribution of value added

Agricultural supply chains link agricultural producers with food end consumers via the processing food industry and the food-distributing retailers (**Figure 1**). This study focuses on the supply chain stage of agricultural production of the farmers. Following a price transmission approach, we investigate market integration and efficiency in agricultural supply chains in the CIS countries. To what degree are price shocks transmitted between the regions and from the world market to the domestic markets? Well-functioning and efficient markets are characterized by strong integration, which could contribute to cushion priceincreasing effects of regional production shortfalls and prevent that prices increase beyond

Generally, a unique concept of market integration and efficiency does not exist [2]. In this chapter, we assume that a well-functioning market is a spatially efficient market which is characterized by strong market integration. Thus, price shocks in one region are quickly

ers (supply chain members), and policy makers.

along the supply chain [1].

140 Agricultural Value Chain

world market prices.

**Figure 1.** Research scope. Source: own illustration.

We analyze spatial transmission of different agricultural and food prices between various CIS countries and between CIS countries and the world market. Specifically, we focus on wheat, meat (beef, pork, and poultry), and milk in eight CIS countries in the region. An overview on the countries included in our analysis is presented in Appendix.

We analyze on the integration of agricultural markets in CIS countries with their regional trade partners within the CIS region but also with the EU market and the world market. We evaluate the integration of domestic CIS markets with the export markets in other CIS countries within the region. We also examine how price changes from the EU market and international markets are transmitted to the domestic markets in the CIS region.

Focusing on the bivariate price transmission model, we characterize long-run dynamics between price pairs consisting of a domestic price of one of the CIS countries and a world

<sup>1</sup> We use "world market" and "international market" interchangeably in this article.

market price (or price of some CIS exporting country).2 We refer to a domestic market as fully integrated in the world market, if price changes on the world market are completely transmitted to the domestic market. A long-run price equilibrium is given as

$$P\_t^d = \mathcal{R} + \mathcal{B} \, P\_t^u + \varepsilon\_t \tag{1}$$

period covered by our data set ranges from 2006 until 2014 and differs between countries and products. Thus, the number of observations varies between 74 (for Moldova) and 130

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Our data set comprises pork prices for Armenia, Georgia, Belarus, Kazakhstan, Russia, and Ukraine. In addition, we consider pork prices for the EU, Brazil, and USA, which are some of the most important pork exporters to the CIS countries. Denmark, Germany, and Spain together have exported more than 50% of total EU pork export to the CIS in 2013. Our data set contains two types of pork prices. First, for Ukraine, we account for producer prices, which refer to the price paid for 1 kg of live animal. Second, we account for the producer price for 1 kg of deadweight for all other countries. The conversion of the prices between 1 kg of live animal and deadweight is done by using the conversion rate of 0.59 for Ukraine [9]. Our data set covers the period from January 2004 until December 2014. The number of observations differs between countries, from 45 observations for Ukraine to 132 observations for Armenia,

As was the case for pork, we account for beef prices for Armenia, Georgia, Russia, Kazakhstan, Belarus, and Ukraine. For the EU, we use the EU average beef price. For the world price, we focus on beef prices of USA, Brazil, Uruguay, Argentina, and Australia, which are directly involved in beef export to CIS countries. Our data set covers the period from January 2004 until December 2014. The number of observations differs between countries, from 45 observa-

Due to very limited data availability for poultry, only Georgia as a representative for the Caucasian countries is covered by our analysis. For the EU price, we account for both EU average and country-specific average poultry prices. Here, we selected Netherlands and Germany as two of the most important EU exporters of poultry meat to CIS countries. The data set covers a period from January 2004 until December 2014. The number of observations differs

The milk prices used for the analysis are average monthly milk producer prices. For the selected international markets, we use EU whole milk powder (WMP) export prices and FOB Oceania WMP prices. In addition, we use domestic WMP prices for Netherlands and Germany, countries that are the largest EU WMP exporters to the CIS countries accounting for 21 and 16% of the total CIS import, respectively. To compare the fluid milk producer prices of CIS countries with the WMP prices of the selected international markets, we transform the fluid milk prices into WMP prices using conversion factors obtained by the national experts of the selected CIS countries [10]. Thus, for Armenia, we use a conversion factor of 7.5, for Belarus 7.3, for Kazakhstan 7.5, For Russia 7, and for Ukraine 8.3. Our data set covers a period from January 2004 to December 2013. As in previous cases, the number of observations differs between the countries, ranging

Overall, considering that most of the agricultural trade of the CIS countries is done in US Dollars (USD), prices in domestic currencies are converted in USD. Thus, all prices used for

between countries, from 45 observations for Ukraine to 132 observations for Russia.

from 36 observations for Ukraine to 106 observations for most other countries.

the analysis refer to USD per measurement unit.

tions for Ukraine to 132 observations for Armenia, Russia, EU, and USA.

(for Belarus).

Russia, EU, and USA.

where *<sup>P</sup> <sup>t</sup> <sup>d</sup>* and *P <sup>t</sup> <sup>w</sup>* are natural logarithm of domestic and world market prices at time *t* espectively,the intercept parameter α,the slope parameter β, and the residual ε *<sup>t</sup>* denoting the stationary disturbance term. The long-run price transmission parameter β indicates the degree (in %) to which price changes on the world market are transmitted to the domestic market. Perfect market integration is given if β = 1, implying that a 1% price change on the world market is transmitted by 100% to the domestic market, leading to a 1% price change on the domestic market.

We apply the augmented Dickey-Fuller (ADF) test [6] to test on stationarity of our data series. We test for cointegration between the non-stationary price series using the Johansen test of linear cointegration [7]. In case, we find domestic and world market prices cointegrated, the Ordinary least squares (OLS) regression yields consistent and efficient estimates of the longrun equilibrium parameters [8].

As already mentioned above, data availability is one of the most critical issues when it comes to research on food markets in the CIS countries. In this study, we have created a unique data set for selected food products by combining different data sources, ranging from statistical offices of the respective CIS countries, via different country reports published by various international institutions (e.g., WB, FAO, and OECD), all the way to expert interviews. According to data availability, we are able to conduct the analysis for wheat, meat (pork, beef, and poultry), and milk (i.e., milk powder) markets of all eight selected CIS countries.

Concerning wheat prices, we use producer, import, and export prices of wheat in different countries. Data are sorted into two groups. The first group refers to Armenia, Azerbaijan, Georgia, Ukraine, and Moldova where we use average producer wheat prices. Since domestic producer prices for wheat in Georgia are not available, we use the cost, insurance, and freight (i.e., CIF) import price. The second group consists of the Customs Union members, i.e., Russia, Kazakhstan, and Belarus. Considering that Russia and Kazakhstan are, besides Ukraine, the main wheat exporters not only to the CIS region but also to the world market as well, in addition to average producer prices, we also account for their free on board (i.e., FOB) export prices observed at the Black Sea harbors. For Belarus, we use the governmentally fixed wheat purchase prices. We use average French FOB price at the port of Rouen (representative price for the Marché à Terme International de France (MATIF) commodity futures market in Europe) as a measure for the EU market price. Average FOB soft red winter wheat prices of the USA serve as representative for the world market price. The time

<sup>2</sup> For the simplicity we keep the term world market price for describing the long-run price equilibrium.

period covered by our data set ranges from 2006 until 2014 and differs between countries and products. Thus, the number of observations varies between 74 (for Moldova) and 130 (for Belarus).

market price (or price of some CIS exporting country).2

*Pt*

*<sup>d</sup>* and *P <sup>t</sup>*

the domestic market.

run equilibrium parameters [8].

selected CIS countries.

2

where *<sup>P</sup> <sup>t</sup>*

142 Agricultural Value Chain

ted to the domestic market. A long-run price equilibrium is given as

integrated in the world market, if price changes on the world market are completely transmit-

*<sup>d</sup>* = α + β *Pt*

the stationary disturbance term. The long-run price transmission parameter β indicates the degree (in %) to which price changes on the world market are transmitted to the domestic market. Perfect market integration is given if β = 1, implying that a 1% price change on the world market is transmitted by 100% to the domestic market, leading to a 1% price change on

We apply the augmented Dickey-Fuller (ADF) test [6] to test on stationarity of our data series. We test for cointegration between the non-stationary price series using the Johansen test of linear cointegration [7]. In case, we find domestic and world market prices cointegrated, the Ordinary least squares (OLS) regression yields consistent and efficient estimates of the long-

As already mentioned above, data availability is one of the most critical issues when it comes to research on food markets in the CIS countries. In this study, we have created a unique data set for selected food products by combining different data sources, ranging from statistical offices of the respective CIS countries, via different country reports published by various international institutions (e.g., WB, FAO, and OECD), all the way to expert interviews. According to data availability, we are able to conduct the analysis for wheat, meat (pork, beef, and poultry), and milk (i.e., milk powder) markets of all eight

Concerning wheat prices, we use producer, import, and export prices of wheat in different countries. Data are sorted into two groups. The first group refers to Armenia, Azerbaijan, Georgia, Ukraine, and Moldova where we use average producer wheat prices. Since domestic producer prices for wheat in Georgia are not available, we use the cost, insurance, and freight (i.e., CIF) import price. The second group consists of the Customs Union members, i.e., Russia, Kazakhstan, and Belarus. Considering that Russia and Kazakhstan are, besides Ukraine, the main wheat exporters not only to the CIS region but also to the world market as well, in addition to average producer prices, we also account for their free on board (i.e., FOB) export prices observed at the Black Sea harbors. For Belarus, we use the governmentally fixed wheat purchase prices. We use average French FOB price at the port of Rouen (representative price for the Marché à Terme International de France (MATIF) commodity futures market in Europe) as a measure for the EU market price. Average FOB soft red winter wheat prices of the USA serve as representative for the world market price. The time

For the simplicity we keep the term world market price for describing the long-run price equilibrium.

espectively,the intercept parameter α,the slope parameter β, and the residual ε *<sup>t</sup>*

*<sup>w</sup>* are natural logarithm of domestic and world market prices at time *t*

We refer to a domestic market as fully

*<sup>w</sup>* + *ε<sup>t</sup>* (1)

denoting

Our data set comprises pork prices for Armenia, Georgia, Belarus, Kazakhstan, Russia, and Ukraine. In addition, we consider pork prices for the EU, Brazil, and USA, which are some of the most important pork exporters to the CIS countries. Denmark, Germany, and Spain together have exported more than 50% of total EU pork export to the CIS in 2013. Our data set contains two types of pork prices. First, for Ukraine, we account for producer prices, which refer to the price paid for 1 kg of live animal. Second, we account for the producer price for 1 kg of deadweight for all other countries. The conversion of the prices between 1 kg of live animal and deadweight is done by using the conversion rate of 0.59 for Ukraine [9]. Our data set covers the period from January 2004 until December 2014. The number of observations differs between countries, from 45 observations for Ukraine to 132 observations for Armenia, Russia, EU, and USA.

As was the case for pork, we account for beef prices for Armenia, Georgia, Russia, Kazakhstan, Belarus, and Ukraine. For the EU, we use the EU average beef price. For the world price, we focus on beef prices of USA, Brazil, Uruguay, Argentina, and Australia, which are directly involved in beef export to CIS countries. Our data set covers the period from January 2004 until December 2014. The number of observations differs between countries, from 45 observations for Ukraine to 132 observations for Armenia, Russia, EU, and USA.

Due to very limited data availability for poultry, only Georgia as a representative for the Caucasian countries is covered by our analysis. For the EU price, we account for both EU average and country-specific average poultry prices. Here, we selected Netherlands and Germany as two of the most important EU exporters of poultry meat to CIS countries. The data set covers a period from January 2004 until December 2014. The number of observations differs between countries, from 45 observations for Ukraine to 132 observations for Russia.

The milk prices used for the analysis are average monthly milk producer prices. For the selected international markets, we use EU whole milk powder (WMP) export prices and FOB Oceania WMP prices. In addition, we use domestic WMP prices for Netherlands and Germany, countries that are the largest EU WMP exporters to the CIS countries accounting for 21 and 16% of the total CIS import, respectively. To compare the fluid milk producer prices of CIS countries with the WMP prices of the selected international markets, we transform the fluid milk prices into WMP prices using conversion factors obtained by the national experts of the selected CIS countries [10]. Thus, for Armenia, we use a conversion factor of 7.5, for Belarus 7.3, for Kazakhstan 7.5, For Russia 7, and for Ukraine 8.3. Our data set covers a period from January 2004 to December 2013. As in previous cases, the number of observations differs between the countries, ranging from 36 observations for Ukraine to 106 observations for most other countries.

Overall, considering that most of the agricultural trade of the CIS countries is done in US Dollars (USD), prices in domestic currencies are converted in USD. Thus, all prices used for the analysis refer to USD per measurement unit.

## **3. Agricultural trade of the CIS countries**

In the following, we provide an overview on agricultural trade of the CIS trade regarding wheat, pork, beef, poultry, and milk which provides the basis for the interpretation of our empirical results in Section 4.

Belarus, Russia, and Ukraine are the largest regional exporters. On the other hand, about 44% of the total CIS dairy imports originate from the EU, where Netherlands, Germany, and Finland represent the largest exporters, covering 50% of the EU exports to CIS countries. Only about 9% of dairy products are imported from some of the world markets (excluding CIS and EU). Concerning milk, it is mainly imported in the form of a milk powder. About 65% of total milk powder imports by the CIS countries originate from Belarus and Ukraine, which are net

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Empirical results are presented for each of the five agricultural products individually. Besides the comparison of average price levels between countries, we provide a detailed overview on the pattern of market integration for each product. Market integration for the different agricultural products is analyzed on an aggregated level for the CIS countries on average and on a disaggregated level for individual countries. Market integration of the CIS countries is investigated regarding their regional integration in the CIS, the integration with the EU mar-

Domestic price and trade policies are among most important factors determining domestic price developments. Due to different production and trade characteristics of the CIS countries covered in this study, domestic price developments differ between the selected countries (**Figure 2**). Thus, wheat prices in Armenia, Azerbaijan, and Georgia, three wheat importing countries, are higher compared to the CIS average. On the other hand, wheat prices in Russia and Ukraine, two large wheat exporters, are on average lower compared to the average CIS prices and selected international prices. The most extreme case is Belarus, where the domestic government keeps wheat prices at an artificially low level to support domestic meat production [15]. Furthermore, wheat producer prices in the whole CIS region were affected by

**Figure 2.** Average wheat price level in the CIS countries and selected international markets (base: 2011–2013). Source:

Statistical offices of the respective CIS countries [17, 18], own illustration.

exporters. Further, about 23% of milk powder is imported from EU (27) markets.

**4. Empirical results**

ket and the world market.

**4.1. Wheat**

Wheat production and trade are of a great importance for the CIS countries. From one side, Russia, Ukraine, and Kazakhstan are becoming large wheat exporters that are important not only for the CIS region but also for the international markets. This is especially the case for Russia that became the largest wheat exporter in the world in 2016 of about 40 million ton. On the other side, Caucasian countries (i.e., Armenia, Azerbaijan, and Georgia) import more than 90% of wheat from the CIS region, notably from Russia and Kazakhstan [11]. From the regional perspective, Russian wheat is the most important for domestic consumption, and its quality is usually improved by imports of the high-quality Kazakh wheat. This is mainly the case for Caucasian countries. Nevertheless, Kazakh wheat is almost the only source of wheat for some Central Asian countries (i.e., Uzbekistan, Tajikistan, and Kyrgyzstan). Besides mentioned wheat exporting and importing CIS countries, Belarus and Moldova produce a sufficient amount of wheat for domestic production but are not large wheat exporters.

All the selected CIS countries are net pork importers. The EU (27) is the largest supplier of pork to the CIS countries with a share of 56% (in 2013). Only about 2% of pork is traded regionally, where the main exporters are Moldova, Belarus, Russia, and Kazakhstan. Significant market changes are recorded for the members of the Customs Union, where each member country is supposed to adjust their meat import tariff according to the Union's common trade policy. This was particularly important for Kazakhstan, which did not have any significant internal market protection before [12]. Nevertheless, most of the selected CIS countries have a higher level of price protection for pork compared to other products [13].

In comparison with pork, CIS beef markets are considerably different. Namely, Caucasian countries (i.e., Armenia, Azerbaijan, and Georgia) are net beef importers. The same is true for Russia and Kazakhstan. About 89% of beef is imported from some of the international markets (excluding EU (27)). Only about 8% is imported from some of the CIS countries. On the other hand, the main beef exporting CIS countries are Belarus, Moldova, and Ukraine. Overall, beef is one of the products that have the smallest level of price protection among CIS countries [13].

Similar to the CIS beef markets, some of the CIS countries are net importers, and some are net poultry exporters. Concerning imports, about 17% is imported from the EU (27) markets, 22% from other CIS countries, and 61% from other international markets (in 2013, [14]). The net importing countries are Armenia, Azerbaijan, Georgia, Moldova, Russia, and Kazakhstan. On the other side, some of the net importers also engage in poultry export but mainly on the regional markets. The only two net exporting countries are Belarus and Ukraine. As is the case with pork, poultry also has high level of price protection among CIS countries [13].

Almost half of the total dairy products imported to the selected CIS countries originate from the region. Namely, 47% of total diary imports originate from some of the CIS countries, where Belarus, Russia, and Ukraine are the largest regional exporters. On the other hand, about 44% of the total CIS dairy imports originate from the EU, where Netherlands, Germany, and Finland represent the largest exporters, covering 50% of the EU exports to CIS countries. Only about 9% of dairy products are imported from some of the world markets (excluding CIS and EU). Concerning milk, it is mainly imported in the form of a milk powder. About 65% of total milk powder imports by the CIS countries originate from Belarus and Ukraine, which are net exporters. Further, about 23% of milk powder is imported from EU (27) markets.

### **4. Empirical results**

Empirical results are presented for each of the five agricultural products individually. Besides the comparison of average price levels between countries, we provide a detailed overview on the pattern of market integration for each product. Market integration for the different agricultural products is analyzed on an aggregated level for the CIS countries on average and on a disaggregated level for individual countries. Market integration of the CIS countries is investigated regarding their regional integration in the CIS, the integration with the EU market and the world market.

### **4.1. Wheat**

**3. Agricultural trade of the CIS countries**

empirical results in Section 4.

144 Agricultural Value Chain

countries [13].

In the following, we provide an overview on agricultural trade of the CIS trade regarding wheat, pork, beef, poultry, and milk which provides the basis for the interpretation of our

Wheat production and trade are of a great importance for the CIS countries. From one side, Russia, Ukraine, and Kazakhstan are becoming large wheat exporters that are important not only for the CIS region but also for the international markets. This is especially the case for Russia that became the largest wheat exporter in the world in 2016 of about 40 million ton. On the other side, Caucasian countries (i.e., Armenia, Azerbaijan, and Georgia) import more than 90% of wheat from the CIS region, notably from Russia and Kazakhstan [11]. From the regional perspective, Russian wheat is the most important for domestic consumption, and its quality is usually improved by imports of the high-quality Kazakh wheat. This is mainly the case for Caucasian countries. Nevertheless, Kazakh wheat is almost the only source of wheat for some Central Asian countries (i.e., Uzbekistan, Tajikistan, and Kyrgyzstan). Besides mentioned wheat exporting and importing CIS countries, Belarus and Moldova produce a

sufficient amount of wheat for domestic production but are not large wheat exporters.

level of price protection for pork compared to other products [13].

All the selected CIS countries are net pork importers. The EU (27) is the largest supplier of pork to the CIS countries with a share of 56% (in 2013). Only about 2% of pork is traded regionally, where the main exporters are Moldova, Belarus, Russia, and Kazakhstan. Significant market changes are recorded for the members of the Customs Union, where each member country is supposed to adjust their meat import tariff according to the Union's common trade policy. This was particularly important for Kazakhstan, which did not have any significant internal market protection before [12]. Nevertheless, most of the selected CIS countries have a higher

In comparison with pork, CIS beef markets are considerably different. Namely, Caucasian countries (i.e., Armenia, Azerbaijan, and Georgia) are net beef importers. The same is true for Russia and Kazakhstan. About 89% of beef is imported from some of the international markets (excluding EU (27)). Only about 8% is imported from some of the CIS countries. On the other hand, the main beef exporting CIS countries are Belarus, Moldova, and Ukraine. Overall, beef is one of the products that have the smallest level of price protection among CIS

Similar to the CIS beef markets, some of the CIS countries are net importers, and some are net poultry exporters. Concerning imports, about 17% is imported from the EU (27) markets, 22% from other CIS countries, and 61% from other international markets (in 2013, [14]). The net importing countries are Armenia, Azerbaijan, Georgia, Moldova, Russia, and Kazakhstan. On the other side, some of the net importers also engage in poultry export but mainly on the regional markets. The only two net exporting countries are Belarus and Ukraine. As is the case

Almost half of the total dairy products imported to the selected CIS countries originate from the region. Namely, 47% of total diary imports originate from some of the CIS countries, where

with pork, poultry also has high level of price protection among CIS countries [13].

Domestic price and trade policies are among most important factors determining domestic price developments. Due to different production and trade characteristics of the CIS countries covered in this study, domestic price developments differ between the selected countries (**Figure 2**). Thus, wheat prices in Armenia, Azerbaijan, and Georgia, three wheat importing countries, are higher compared to the CIS average. On the other hand, wheat prices in Russia and Ukraine, two large wheat exporters, are on average lower compared to the average CIS prices and selected international prices. The most extreme case is Belarus, where the domestic government keeps wheat prices at an artificially low level to support domestic meat production [15]. Furthermore, wheat producer prices in the whole CIS region were affected by

**Figure 2.** Average wheat price level in the CIS countries and selected international markets (base: 2011–2013). Source: Statistical offices of the respective CIS countries [17, 18], own illustration.

wheat export restrictions imposed by Russia, Ukraine, and Kazakhstan between 2006 and 2012 [16], which ultimately had a strong effect on consumers and overall food security in these countries.

The analysis of market integration indicates that the CIS wheat markets are strongly integrated within the region (integration between CIS countries) and with the EU (i.e., France) and world markets (i.e., USA; **Figure 3**). Surprisingly, integration in world wheat markets is highest amounting to about 76%. Regional wheat market integration lies by on average 68%, and integration with the EU wheat market lies by 61%.

**Figure 4** provides a detailed overview on the pattern of market integration. On the regional level, Georgia and Moldova are strongest integrated with the other CIS countries (**Figure 4**). Moderate regional integration is recorded for Armenia and Azerbaijan, countries that are heavily dependent on wheat imports from other CIS countries. A moderate level of integration might indicate certain market inefficiencies, which might be connected to certain market regulations set by the government, for example, in the case of Azerbaijan.

The integration of the CIS countries within the CIS regional market is very similar to their integration in the EU market and the world market. The main reason is that both markets, EU and world, are used as reference markets for price negotiations in wheat trade by CIS traders. Price discounts or mark-ups might result from quality differences and internal price determining factors. It is striking that the Ukrainian wheat market has stronger integration with world markets compared to the EU. Overall, the Russian, Ukrainian, and Moldavian wheat markets are strongly integrated with both the EU and world markets. These results are in accordance with the trade status of these countries. Namely, Russia and Ukraine are large wheat exporters not only in the CIS region but also on the international level as well. Thus, international price changes have a great impact on their domestic producer prices. On

the other hand, Moldova is also an exporting country but with no significant relevance for the regional and international wheat trade. It is interesting to observe that there is almost no integration between Kazakh and international wheat markets. The main reason is that Kazakh wheat export is mainly concentrated on Central and East Asian countries, and thus, Kazakh

**Figure 4.** CIS wheat market integration—disaggregated level. Source: Own calculation based on the results, own

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The 3-year pork price averages presented in **Figure 5** indicate that the CIS prices are higher than the prices on the EU (i.e., Denmark, Germany, and Spain) and world markets (i.e., Brazil and USA). For the Customs Union members (i.e., Belarus, Russia, and Kazakhstan), we can observe that Russian pork prices are at the level of the CIS average price but by 20 and 11% higher than the average Belarussian and Kazakh prices, respectively. The Belarus price level is not reflecting actual market conditions but is rather the result of the price targeting by the

The results of the price transmission analysis indicate that the CIS countries are on average well integrated with both regional and international pork markets. The highest integration level is recorded with the EU market where we observe full transmission of price shocks (**Figure 6**). Besides the EU, regional markets seem to be very well integrated among each other, where about 80% of the price shocks are transmitted in the long run. In particular, regional market integration is very strong between Belarus, Russia, and Kazakhstan. International market price shocks are only by about 50% transmitted to the domestic markets in the CIS countries. Obtained results are in accordance with the CIS pork trade developments where we observe that 56% of the total CIS pork import (for selected CIS countries) originates from the EU.

domestic prices do not react much to price shocks from the "Western" markets.

**4.2. Pork**

illustration.

Belarussian government [13].

**Figure 3.** CIS wheat market integration—aggregated level. Source: Own calculation based on the estimation results, own illustration.

**Figure 4.** CIS wheat market integration—disaggregated level. Source: Own calculation based on the results, own illustration.

the other hand, Moldova is also an exporting country but with no significant relevance for the regional and international wheat trade. It is interesting to observe that there is almost no integration between Kazakh and international wheat markets. The main reason is that Kazakh wheat export is mainly concentrated on Central and East Asian countries, and thus, Kazakh domestic prices do not react much to price shocks from the "Western" markets.

#### **4.2. Pork**

wheat export restrictions imposed by Russia, Ukraine, and Kazakhstan between 2006 and 2012 [16], which ultimately had a strong effect on consumers and overall food security in

The analysis of market integration indicates that the CIS wheat markets are strongly integrated within the region (integration between CIS countries) and with the EU (i.e., France) and world markets (i.e., USA; **Figure 3**). Surprisingly, integration in world wheat markets is highest amounting to about 76%. Regional wheat market integration lies by on average 68%,

**Figure 4** provides a detailed overview on the pattern of market integration. On the regional level, Georgia and Moldova are strongest integrated with the other CIS countries (**Figure 4**). Moderate regional integration is recorded for Armenia and Azerbaijan, countries that are heavily dependent on wheat imports from other CIS countries. A moderate level of integration might indicate certain market inefficiencies, which might be connected to certain market

The integration of the CIS countries within the CIS regional market is very similar to their integration in the EU market and the world market. The main reason is that both markets, EU and world, are used as reference markets for price negotiations in wheat trade by CIS traders. Price discounts or mark-ups might result from quality differences and internal price determining factors. It is striking that the Ukrainian wheat market has stronger integration with world markets compared to the EU. Overall, the Russian, Ukrainian, and Moldavian wheat markets are strongly integrated with both the EU and world markets. These results are in accordance with the trade status of these countries. Namely, Russia and Ukraine are large wheat exporters not only in the CIS region but also on the international level as well. Thus, international price changes have a great impact on their domestic producer prices. On

**Figure 3.** CIS wheat market integration—aggregated level. Source: Own calculation based on the estimation results, own

regulations set by the government, for example, in the case of Azerbaijan.

and integration with the EU wheat market lies by 61%.

these countries.

146 Agricultural Value Chain

illustration.

The 3-year pork price averages presented in **Figure 5** indicate that the CIS prices are higher than the prices on the EU (i.e., Denmark, Germany, and Spain) and world markets (i.e., Brazil and USA). For the Customs Union members (i.e., Belarus, Russia, and Kazakhstan), we can observe that Russian pork prices are at the level of the CIS average price but by 20 and 11% higher than the average Belarussian and Kazakh prices, respectively. The Belarus price level is not reflecting actual market conditions but is rather the result of the price targeting by the Belarussian government [13].

The results of the price transmission analysis indicate that the CIS countries are on average well integrated with both regional and international pork markets. The highest integration level is recorded with the EU market where we observe full transmission of price shocks (**Figure 6**). Besides the EU, regional markets seem to be very well integrated among each other, where about 80% of the price shocks are transmitted in the long run. In particular, regional market integration is very strong between Belarus, Russia, and Kazakhstan. International market price shocks are only by about 50% transmitted to the domestic markets in the CIS countries. Obtained results are in accordance with the CIS pork trade developments where we observe that 56% of the total CIS pork import (for selected CIS countries) originates from the EU.

**Figure 5.** Average pork price level in the CIS countries and selected international markets (base: 2011–2013). Source: Statistical offices of the respective CIS countries and [19], own illustration.

indicate strong integration of Georgian and Armenian pork markets, while Belarus, Russia,

**Figure 7.** CIS pork market integration—disaggregated level. Note: Missing marker means no integration with the

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The 3-year beef price averages presented in **Figure 8** indicate that the average CIS prices are 29% lower than the EU price (i.e., EU average price) but are similar to the price level of the world markets (i.e., Brazil, Uruguay, USA, Argentina, and Australia). Armenia, Russia, and Kazakhstan have the highest beef prices, which are 50, 35, and 20% higher than the CIS average prices, respectively. Our data indicate that Ukraine has relatively low beef prices compared to other CIS countries, the EU and the world market, with the price level about 60% lower than the CIS average. Overall, the data presented in **Figure 8** show significant dif-

Our price transmission results indicate very strong integration of CIS beef markets both regionally and internationally. We find that price shocks are perfectly transmitted from the EU market and by 88% from the world market to the CIS countries on average. But even

The cross-country market integration results on the disaggregated level presented in **Figure 10** indicate that Kazakhstan and Belarus are strongly integrated with other regional markets. A moderate level of regional integration is recorded for Russia, while Georgia seems not to be integrated with other regional markets in the long run. Concerning market integration with the EU, our results indicate almost full transmission of price shocks in the long run. In contrast, our results do suggest no market integration of the Ukrainian market with the EU.

regional integration is high amounting to 86% of the CIS on average (**Figure 9**).

and Kazakhstan show very weak integration.

respective market. Source: Own calculation based on the results, own illustration.

ferences in average beef prices between the CIS countries.

**4.3. Beef**

**Figure 6.** CIS pork market integration—aggregated level. Source: Own calculation based on the estimation results, own illustration.

A cross-country comparison of the price transmission results is presented in **Figure 7**. As already mentioned, our results indicate highest integration of the CIS pork market with the EU. This is certainly the case for Belarus, Russia and Kazakhstan, members of the Customs Union, for which we found full transmission of price shocks from the EU market in the long run. These results are not surprising considering that Belarus, Russia, and Kazakhstan import 98, 59, and 57%, respectively, of their total pork import from the EU. On the other hand, Belarus, Russia, and Kazakhstan have a very low level of integration with other CIS countries. Concerning market integration with the international markets (**Figure 7**), our results

**Figure 7.** CIS pork market integration—disaggregated level. Note: Missing marker means no integration with the respective market. Source: Own calculation based on the results, own illustration.

indicate strong integration of Georgian and Armenian pork markets, while Belarus, Russia, and Kazakhstan show very weak integration.

### **4.3. Beef**

A cross-country comparison of the price transmission results is presented in **Figure 7**. As already mentioned, our results indicate highest integration of the CIS pork market with the EU. This is certainly the case for Belarus, Russia and Kazakhstan, members of the Customs Union, for which we found full transmission of price shocks from the EU market in the long run. These results are not surprising considering that Belarus, Russia, and Kazakhstan import 98, 59, and 57%, respectively, of their total pork import from the EU. On the other hand, Belarus, Russia, and Kazakhstan have a very low level of integration with other CIS countries. Concerning market integration with the international markets (**Figure 7**), our results

**Figure 6.** CIS pork market integration—aggregated level. Source: Own calculation based on the estimation results, own

**Figure 5.** Average pork price level in the CIS countries and selected international markets (base: 2011–2013). Source:

Statistical offices of the respective CIS countries and [19], own illustration.

illustration.

148 Agricultural Value Chain

The 3-year beef price averages presented in **Figure 8** indicate that the average CIS prices are 29% lower than the EU price (i.e., EU average price) but are similar to the price level of the world markets (i.e., Brazil, Uruguay, USA, Argentina, and Australia). Armenia, Russia, and Kazakhstan have the highest beef prices, which are 50, 35, and 20% higher than the CIS average prices, respectively. Our data indicate that Ukraine has relatively low beef prices compared to other CIS countries, the EU and the world market, with the price level about 60% lower than the CIS average. Overall, the data presented in **Figure 8** show significant differences in average beef prices between the CIS countries.

Our price transmission results indicate very strong integration of CIS beef markets both regionally and internationally. We find that price shocks are perfectly transmitted from the EU market and by 88% from the world market to the CIS countries on average. But even regional integration is high amounting to 86% of the CIS on average (**Figure 9**).

The cross-country market integration results on the disaggregated level presented in **Figure 10** indicate that Kazakhstan and Belarus are strongly integrated with other regional markets. A moderate level of regional integration is recorded for Russia, while Georgia seems not to be integrated with other regional markets in the long run. Concerning market integration with the EU, our results indicate almost full transmission of price shocks in the long run. In contrast, our results do suggest no market integration of the Ukrainian market with the EU.

**Figure 8.** Average beef price level in the CIS countries and selected international markets (base: 2011–2013). Source: Statistical offices of the respective CIS countries and [19], own illustration.

**Figure 9.** CIS beef market integration—aggregated level. Source: Own calculation based on the estimation results, own illustration.

Concerning the price transmission analysis, our results indicate that the CIS poultry markets are integrated regionally, with the EU and with selected international poultry markets. Strongest integration is recorded with the EU market, where 73% of the price shocks are transmitted to the domestic CIS markets in the long run (**Figure 12**). Moderate transmission is recorded from regional markets, while relatively slow transmission is recorded from the

**Figure 11.** Average poultry price level in the CIS countries and selected international markets (base: 2011–2013). Source:

**Figure 10.** CIS beef market integration—disaggregated level. Note: Missing marker means no integration with the

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respective market. Source: Own calculation based on the results, own illustration.

The results from the disaggregated cross-country comparison indicate that the Russian poultry prices are strongly integrated with both regional and EU poultry markets, where we observe

selected international markets.

Statistical offices of the respective CIS countries, own illustration.

#### **4.4. Poultry**

The 3-year average poultry prices presented in **Figure 11** indicate that the CIS prices are 26% lower than the EU price (i.e., Netherlands and Germany) and are similar to the world market price level (i.e., Brazil and USA). This is especially the case for Georgia, Ukraine, and Kazakhstan, where prices are below the CIS average. In contrast to pork and beef prices, poultry prices are not characterized by a great dispersion for the observed period.

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**Figure 10.** CIS beef market integration—disaggregated level. Note: Missing marker means no integration with the respective market. Source: Own calculation based on the results, own illustration.

**Figure 11.** Average poultry price level in the CIS countries and selected international markets (base: 2011–2013). Source: Statistical offices of the respective CIS countries, own illustration.

Concerning the price transmission analysis, our results indicate that the CIS poultry markets are integrated regionally, with the EU and with selected international poultry markets. Strongest integration is recorded with the EU market, where 73% of the price shocks are transmitted to the domestic CIS markets in the long run (**Figure 12**). Moderate transmission is recorded from regional markets, while relatively slow transmission is recorded from the selected international markets.

**4.4. Poultry**

illustration.

150 Agricultural Value Chain

The 3-year average poultry prices presented in **Figure 11** indicate that the CIS prices are 26% lower than the EU price (i.e., Netherlands and Germany) and are similar to the world market price level (i.e., Brazil and USA). This is especially the case for Georgia, Ukraine, and Kazakhstan, where prices are below the CIS average. In contrast to pork and beef prices,

**Figure 9.** CIS beef market integration—aggregated level. Source: Own calculation based on the estimation results, own

**Figure 8.** Average beef price level in the CIS countries and selected international markets (base: 2011–2013). Source:

Statistical offices of the respective CIS countries and [19], own illustration.

poultry prices are not characterized by a great dispersion for the observed period.

The results from the disaggregated cross-country comparison indicate that the Russian poultry prices are strongly integrated with both regional and EU poultry markets, where we observe almost full transmission of price shocks (**Figure 13**). However, our results of Ukraine indicate no market integration with regional and EU poultry markets.

**Figure 14** shows the estimated 3-year WMP price averages for the CIS countries. Compared to selected EU markets (i.e., EU 27 average price, Netherlands, and Germany) and world markets (i.e., Oceania), estimated CIS average prices are by on average 28% lower. The highest WMP prices are recorded for Russia and Kazakhstan (14% above the average), while the lowest prices are recorded for Belarus (27% below the average). Armenian and Ukrainian WMP

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The price transmission results indicate relatively moderate integration of the CIS WMP markets with both regional and selected international markets (**Figure 15**). The results from the

**Figure 14.** Average milk price level in the CIS countries and selected international markets (base: 2011–2013). Source:

**Figure 15.** CIS whole milk powder market integration—aggregated level. Source: Own calculation based on the

prices are almost at the level of average CIS WMP prices.

Statistical offices of the respective CIS countries and [18], own illustration.

estimation results, own illustration.

#### **4.5. Milk**

For investigating the country-level assessment of CIS milk market integration, we focus on the milk powder prices [i.e., whole milk powder (WMP)] rather than on fluid milk prices.

**Figure 12.** CIS poultry market integration—aggregated level. Source: Own calculation based on the estimation results, own illustration.

**Figure 13.** CIS poultry market integration—disaggregated level. Source: Own calculation based on the results, own illustration.

**Figure 14** shows the estimated 3-year WMP price averages for the CIS countries. Compared to selected EU markets (i.e., EU 27 average price, Netherlands, and Germany) and world markets (i.e., Oceania), estimated CIS average prices are by on average 28% lower. The highest WMP prices are recorded for Russia and Kazakhstan (14% above the average), while the lowest prices are recorded for Belarus (27% below the average). Armenian and Ukrainian WMP prices are almost at the level of average CIS WMP prices.

The price transmission results indicate relatively moderate integration of the CIS WMP markets with both regional and selected international markets (**Figure 15**). The results from the

**Figure 14.** Average milk price level in the CIS countries and selected international markets (base: 2011–2013). Source: Statistical offices of the respective CIS countries and [18], own illustration.

**Figure 15.** CIS whole milk powder market integration—aggregated level. Source: Own calculation based on the estimation results, own illustration.

**Figure 13.** CIS poultry market integration—disaggregated level. Source: Own calculation based on the results, own

**Figure 12.** CIS poultry market integration—aggregated level. Source: Own calculation based on the estimation results,

almost full transmission of price shocks (**Figure 13**). However, our results of Ukraine indicate

For investigating the country-level assessment of CIS milk market integration, we focus on the milk powder prices [i.e., whole milk powder (WMP)] rather than on fluid milk prices.

no market integration with regional and EU poultry markets.

illustration.

own illustration.

**4.5. Milk**

152 Agricultural Value Chain

cross-country comparison indicate that the Kazakh WMP market is strongly integrated with the regional markets, where we observe almost full transmission of price shocks (**Figure 16**). The Russian WMP market is strongly integrated with the EU market where we also observe almost full transmission of price shocks. Changes from the selected international market (i.e., Oceania) are transmitted to the Russian and Kazakh markets to the higher degree compared to other CIS countries (**Figure 16**).

#### **4.6. Summary of market integration results**

The results of the price transmission analysis (**Figure 17**) indicate strongest market integration of the CIS beef market with all three reference markets, i.e., regional CIS, EU, and the world market. As already mentioned, one of the main reasons for almost full transmission of price shocks from reference markets to the domestic CIS markets might be the fact that beef markets in CIS countries have lowest level of price protection compared to other products [13].

The observed strong market integration of the CIS pork markets with the EU market might result from comprehensive pork imports (trade flows) from the EU (until 2014). Similarly, significant pork trade between Belarus, Russia, and Kazakhstan, supported by the removal of trade barriers within the Customs Union, contributed to the rather strong regional pork market integration of the CIS countries.

The strong integration of the CIS wheat markets with the world market is might be explained by two main factors: (1) Russia and Ukraine have advanced to global leaders in wheat trade and thus have a strong influence on world wheat prices; (2) World market prices are used as

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Considering that none of the CIS countries is a large poultry and whole milk powder importer or exporter and thus not a significant player on the world market, market integration is lower with the world market compared to EU and CIS regional markets. The EU market prices are used as a benchmark for negotiating poultry and whole milk powder trade between CIS

Overall, all selected CIS markets are well integrated with the EU market due to market proximity and significant trade flows supported by numerous bilateral trade agreements. Integration with world markets is strong for products where CIS markets are large exporters (e.g., for wheat) or importers (e.g., for beef). Regional market integration greatly depends on trade volumes, infrastructure issues, and market barriers (i.e., removal of tariffs within the

Differences in market integration observed between regions or countries might result from the influence of a variety of different factors. In the following, we link major influencing factors, in particular, the level of domestic market support, trade policies, the size of physical trade flows, infrastructure, and bilateral or multilateral trade agreements with our results on

a benchmark price for regional wheat trade among CIS countries.

**Figure 17.** CIS market integration by product. Source: Own calculation and illustration.

**5. Determinants of the CIS market integration**

market integration of the CIS countries.

countries.

Customs Union).

**Figure 16.** CIS whole milk powder market integration—disaggregated level. Note: Missing marker means no integration with the respective market. Source: Own calculation based on the results, own illustration.

**Figure 17.** CIS market integration by product. Source: Own calculation and illustration.

cross-country comparison indicate that the Kazakh WMP market is strongly integrated with the regional markets, where we observe almost full transmission of price shocks (**Figure 16**). The Russian WMP market is strongly integrated with the EU market where we also observe almost full transmission of price shocks. Changes from the selected international market (i.e., Oceania) are transmitted to the Russian and Kazakh markets to the higher degree compared

The results of the price transmission analysis (**Figure 17**) indicate strongest market integration of the CIS beef market with all three reference markets, i.e., regional CIS, EU, and the world market. As already mentioned, one of the main reasons for almost full transmission of price shocks from reference markets to the domestic CIS markets might be the fact that beef markets in CIS countries have lowest level of price protection compared to other products [13].

The observed strong market integration of the CIS pork markets with the EU market might result from comprehensive pork imports (trade flows) from the EU (until 2014). Similarly, significant pork trade between Belarus, Russia, and Kazakhstan, supported by the removal of trade barriers within the Customs Union, contributed to the rather strong regional pork

The strong integration of the CIS wheat markets with the world market is might be explained by two main factors: (1) Russia and Ukraine have advanced to global leaders in wheat trade

**Figure 16.** CIS whole milk powder market integration—disaggregated level. Note: Missing marker means no integration

with the respective market. Source: Own calculation based on the results, own illustration.

to other CIS countries (**Figure 16**).

154 Agricultural Value Chain

**4.6. Summary of market integration results**

market integration of the CIS countries.

and thus have a strong influence on world wheat prices; (2) World market prices are used as a benchmark price for regional wheat trade among CIS countries.

Considering that none of the CIS countries is a large poultry and whole milk powder importer or exporter and thus not a significant player on the world market, market integration is lower with the world market compared to EU and CIS regional markets. The EU market prices are used as a benchmark for negotiating poultry and whole milk powder trade between CIS countries.

Overall, all selected CIS markets are well integrated with the EU market due to market proximity and significant trade flows supported by numerous bilateral trade agreements. Integration with world markets is strong for products where CIS markets are large exporters (e.g., for wheat) or importers (e.g., for beef). Regional market integration greatly depends on trade volumes, infrastructure issues, and market barriers (i.e., removal of tariffs within the Customs Union).

### **5. Determinants of the CIS market integration**

Differences in market integration observed between regions or countries might result from the influence of a variety of different factors. In the following, we link major influencing factors, in particular, the level of domestic market support, trade policies, the size of physical trade flows, infrastructure, and bilateral or multilateral trade agreements with our results on market integration of the CIS countries.

First, market support and trade-oriented policy measures have a strong impact on market integration [20]. For markets characterized by a high level of state support, the results indicate moderate or even no integration with international markets. This is especially the case with the CIS pork and poultry markets. On the country level, Belorussian attempts to support livestock production by strongly regulating grain prices is one of the main reasons why the Belorussian wheat market is not integrated with any of the reference markets. On the contrary, CIS markets with almost no state support, such as wheat and beef markets, are strongly integrated with international markets. Besides direct state support, sudden changes in CIS trade policies are significantly affecting CIS market integration. In particular, numerous export-oriented measures (e.g., export bans, export taxes, or export quotas) were implemented on CIS wheat markets in the last decade. The results for Russia and Ukraine indicate that wheat export restrictions significantly decrease the level of market integration and thus the transmission of price changes from international reference markets to domestic markets [21]. Furthermore, the decrease in price transmission is higher for regions within a country that are strongly integrated with international markets when trade is freely possible (e.g., North Caucasus for Russia and Odessa for Ukraine).

the EU. The main reason for almost full transmission of price shocks from the EU markets might be associated to numerous bilateral trade agreements between the EU and almost all

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In this chapter, we have analyzed to which extend selected CIS markets are integrated in

Based on a unique data set which we have created utilizing a wide variety of different data sources available for the CIS countries, we have conducted the analysis for the wheat, meat (i.e., pork, beef, and poultry), and milk markets. The selected markets represent the most important agricultural sectors of the CIS countries. Well-functioning efficient agricultural markets are essential for food security in the CIS countries and are thus of great interest for

The results of the price transmission analysis indicate that regional integration within the CIS is strongest for pork and beef, followed by poultry and whole milk powder. The integration of CIS markets in world agricultural markets is strongest for wheat and beef, whereas it is relatively low for pork and poultry. All in all, beef markets in the CIS countries are the strongest

Overall, our results indicate that domestic market support and trade policies, physical trade flows between countries, infrastructure, and bilateral or multilateral trade agreements play a key role in market integration of the CIS countries. First, our results indicate that markets characterized by a high level of state support, integration with international markets is weak or even a lack of integration is observed compared to markets where market support measures are absent. Second, our results indicate that CIS markets might be well-integrated with both regional and international markets due to the fact that regional integration is more connected to the physical trade flows (import dependency), while integration with international markets is more based on defining the benchmark price for the products that are traded on the regional level. Third, for most of the CIS countries, underdeveloped infrastructure significantly reduces market integration. Fourth, strengthening trade relations through bilateral or multilateral trade agreements significantly contribute to market integration of the CIS countries. That is especially the case for members of the Eurasian Customs Union and CIS agree-

Research project supported by the European Commission under the 7th Framework Progra mme: "Exploring the potential for agricultural and biomass trade in the Commonwealth of

integrated within the region, with the EU and the world market.

CIS countries.

**6. Conclusions**

policy makers.

ments with the EU.

**Acknowledgements**

Independent States" (www.agricistrade.eu).

regional and world agricultural markets.

Second, the size of physical trade flows and the importance of the reference market for global trade (e.g., US wheat price) play an important role for market integration of the CIS countries. Strong regional integration of the CIS countries is based on the fact that Armenia, Georgia, and Azerbaijan are among the largest CIS wheat importers with wheat imports almost completely originating from other CIS countries (i.e., Russia, Ukraine, and Kazakhstan). At the same time, these countries have strong integration with international markets as well. We argue that price information coming from the main international markets is used by regional CIS traders as a benchmark for negotiating prices in regional trade. Similar considerations could be used for explaining strong market integration between CIS pork markets with regional and EU markets.

Third, underdeveloped infrastructure presents a great obstacle for the market integration of many CIS countries. This is especially visible on a disaggregated country-level analysis. Difficulties to obtain sufficient railway wagons, small capacity of port terminals on the Caspian Sea, and underdeveloped national roads significantly contribute to low market integration of the Kazakh wheat market with international markets. Besides a deficient grain transport infrastructure, large distances between grain producing and consuming regions strongly influence the degree of market integration of different regions in Russia. Infrastructural problems are also one of the main factors influencing market integration of Caucasian countries (i.e., Armenia, Azerbaijan, and Georgia) with the EU and international markets.

Fourth, strengthening trade relations through bilateral or multilateral trade agreements significantly contributes to market integration of the CIS countries. The establishment of the Eurasian Customs Union (EACU) facilitates the trade process between Belarus, Russia, and Kazakhstan. The results indicate that the EACU members have almost identical regional and international levels of integration. This is especially the case for pork markets. In addition, the results indicate strong market integration of CIS pork, beef, poultry, and milk markets with the EU. The main reason for almost full transmission of price shocks from the EU markets might be associated to numerous bilateral trade agreements between the EU and almost all CIS countries.

### **6. Conclusions**

First, market support and trade-oriented policy measures have a strong impact on market integration [20]. For markets characterized by a high level of state support, the results indicate moderate or even no integration with international markets. This is especially the case with the CIS pork and poultry markets. On the country level, Belorussian attempts to support livestock production by strongly regulating grain prices is one of the main reasons why the Belorussian wheat market is not integrated with any of the reference markets. On the contrary, CIS markets with almost no state support, such as wheat and beef markets, are strongly integrated with international markets. Besides direct state support, sudden changes in CIS trade policies are significantly affecting CIS market integration. In particular, numerous export-oriented measures (e.g., export bans, export taxes, or export quotas) were implemented on CIS wheat markets in the last decade. The results for Russia and Ukraine indicate that wheat export restrictions significantly decrease the level of market integration and thus the transmission of price changes from international reference markets to domestic markets [21]. Furthermore, the decrease in price transmission is higher for regions within a country that are strongly integrated with international markets when trade is freely possible (e.g., North Caucasus for

Second, the size of physical trade flows and the importance of the reference market for global trade (e.g., US wheat price) play an important role for market integration of the CIS countries. Strong regional integration of the CIS countries is based on the fact that Armenia, Georgia, and Azerbaijan are among the largest CIS wheat importers with wheat imports almost completely originating from other CIS countries (i.e., Russia, Ukraine, and Kazakhstan). At the same time, these countries have strong integration with international markets as well. We argue that price information coming from the main international markets is used by regional CIS traders as a benchmark for negotiating prices in regional trade. Similar considerations could be used for explaining strong market integration between CIS pork markets with

Third, underdeveloped infrastructure presents a great obstacle for the market integration of many CIS countries. This is especially visible on a disaggregated country-level analysis. Difficulties to obtain sufficient railway wagons, small capacity of port terminals on the Caspian Sea, and underdeveloped national roads significantly contribute to low market integration of the Kazakh wheat market with international markets. Besides a deficient grain transport infrastructure, large distances between grain producing and consuming regions strongly influence the degree of market integration of different regions in Russia. Infrastructural problems are also one of the main factors influencing market integration of Caucasian countries (i.e., Armenia, Azerbaijan, and Georgia) with the EU and international

Fourth, strengthening trade relations through bilateral or multilateral trade agreements significantly contributes to market integration of the CIS countries. The establishment of the Eurasian Customs Union (EACU) facilitates the trade process between Belarus, Russia, and Kazakhstan. The results indicate that the EACU members have almost identical regional and international levels of integration. This is especially the case for pork markets. In addition, the results indicate strong market integration of CIS pork, beef, poultry, and milk markets with

Russia and Odessa for Ukraine).

156 Agricultural Value Chain

regional and EU markets.

markets.

In this chapter, we have analyzed to which extend selected CIS markets are integrated in regional and world agricultural markets.

Based on a unique data set which we have created utilizing a wide variety of different data sources available for the CIS countries, we have conducted the analysis for the wheat, meat (i.e., pork, beef, and poultry), and milk markets. The selected markets represent the most important agricultural sectors of the CIS countries. Well-functioning efficient agricultural markets are essential for food security in the CIS countries and are thus of great interest for policy makers.

The results of the price transmission analysis indicate that regional integration within the CIS is strongest for pork and beef, followed by poultry and whole milk powder. The integration of CIS markets in world agricultural markets is strongest for wheat and beef, whereas it is relatively low for pork and poultry. All in all, beef markets in the CIS countries are the strongest integrated within the region, with the EU and the world market.

Overall, our results indicate that domestic market support and trade policies, physical trade flows between countries, infrastructure, and bilateral or multilateral trade agreements play a key role in market integration of the CIS countries. First, our results indicate that markets characterized by a high level of state support, integration with international markets is weak or even a lack of integration is observed compared to markets where market support measures are absent. Second, our results indicate that CIS markets might be well-integrated with both regional and international markets due to the fact that regional integration is more connected to the physical trade flows (import dependency), while integration with international markets is more based on defining the benchmark price for the products that are traded on the regional level. Third, for most of the CIS countries, underdeveloped infrastructure significantly reduces market integration. Fourth, strengthening trade relations through bilateral or multilateral trade agreements significantly contribute to market integration of the CIS countries. That is especially the case for members of the Eurasian Customs Union and CIS agreements with the EU.

### **Acknowledgements**

Research project supported by the European Commission under the 7th Framework Progra mme: "Exploring the potential for agricultural and biomass trade in the Commonwealth of Independent States" (www.agricistrade.eu).


the committee of the regions. Commission of the European communities, Commission stuff working document SEC 1450, Brussels, 28.10.2009 http://groupedebruges.eu/sites/ default/files/publications/downloads/publication16067\_price\_transmission\_ec.pdf [2] Fackler P, Goodwin B. Spatial price analysis. In: Gardner B, Rausser G, editors. Handbook of Agricultural Economics. Vol. 1B. Amsterdam: Elsevier; pp. 971-1024. DOI: 10.1016/

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s1574-0072(01)10025-3.ch17

10.2307/2286348

10.1002/agr.21358

Center, Washington, United States of America. 2014

Samarkand, Uzbekistan, 2-4 November 2016

United Nations, Rome, Italy. 2009

agricistrade.eu/document-library

## **Appendix. List and classification of countries**

a Although Georgia and Ukraine are no longer CIS members, in this study, we still refer them as CIS countries due to their tight regional trade connections with other CIS members.

### **Author details**

Ivan Djuric\*, Linde Götz, Miranda Svanidze and Thomas Glauben

\*Address all correspondence to: djuric@iamo.de

Leibniz Institute of Agricultural Development in Transition Economies, Halle (Saale), Germany

### **References**

[1] European Commission. Analysis of price transmission along the food supply chain in the EU. Accompanying document to the communication from the Commission to the European Parliament, the Council, the European economic and social committee and the committee of the regions. Commission of the European communities, Commission stuff working document SEC 1450, Brussels, 28.10.2009 http://groupedebruges.eu/sites/ default/files/publications/downloads/publication16067\_price\_transmission\_ec.pdf

**Appendix. List and classification of countries**

France x Denmark x Germany x Netherlands x Spain x

Armenia x Azerbaijan x Georgiaa x Belarus x Moldova x

158 Agricultural Value Chain

a

**Author details**

**References**

Kazakhstan x x Russia x x Ukrainea x x

tight regional trade connections with other CIS members.

\*Address all correspondence to: djuric@iamo.de

**Domestic markets World regional** 

**markets**

**Countries CIS CIS EU World**

Oceania x Brazil x Australia x Argentina x Uruguay x USA x

Ivan Djuric\*, Linde Götz, Miranda Svanidze and Thomas Glauben

Although Georgia and Ukraine are no longer CIS members, in this study, we still refer them as CIS countries due to their

Leibniz Institute of Agricultural Development in Transition Economies, Halle (Saale), Germany

[1] European Commission. Analysis of price transmission along the food supply chain in the EU. Accompanying document to the communication from the Commission to the European Parliament, the Council, the European economic and social committee and

**World reference markets**


[14] United Nation International Trade Statistics Database (UN Comtrade). Available from: www.comtrade.un.org. 2016

**Chapter 9**

Provisional chapter

**The Struggles of Smallholder Farmers: A Cause of**

DOI: 10.5772/intechopen.75710

The Struggles of Smallholder Farmers: A Cause of

**Modern Agricultural Value Chains in South Africa**

The potential of sustaining smallholder farmers (SHFs), for long-term food security remains, within the context of rising modern food value chains, particularly in Africa, a threat. Support for a greener, lower carbon economy that creates jobs and improves human well-being as part of a sustainable and socially inclusive stable economic develop-

To not disrupt African SHF, but rather support an economic inclusion of them in times of rising modern food value chains, requires an understanding of existing modern agricultural value chains, their functioning and constraints; taking South Africa (SA) as an example that has already seen a strong modernization of its value chains over the last 30 years. Several key questions arise: What are the main shortfalls in agricultural value chains and why are SHFs faced with challenges to feed into such existing structures? What blockages do value chain participants (VCP) themselves identify and how do these further entrench such blockages? From understanding VCPs, where must policy focus for a more

The empirical data we collected from an ethnographic qualitative participant research showed that interviewed VCPs are limited in acting within their economic constraints. We also gained sufficient evidence supporting the view that in contrast to the current struggles and spectacular failures VCPs have experienced with SHF, there is inherent continued willingness to engage with SHFs if risk and limitations were reduced and exposure was mitigated, through the establishment of comprehensive cooperative leadership and field

> © 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited.

© 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use,

distribution, and reproduction in any medium, provided the original work is properly cited.

extension that enabled reliability of production quantity and quality from SHF. Keywords: smallholder farmers, food security, agricultural finance, inclusive

Modern Agricultural Value Chains in South Africa

Wolfgang Johann von Loeper, Scott Drimie and

Wolfgang Johann von Loeper, Scott Drimie and

Additional information is available at the end of the chapter

ment should be driven, at least in part, by SHF.

inclusive farming system and better food security?

socio-economics, food safety, land ownership

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.75710

James Blignaut

Abstract

James Blignaut


#### **The Struggles of Smallholder Farmers: A Cause of Modern Agricultural Value Chains in South Africa** The Struggles of Smallholder Farmers: A Cause of Modern Agricultural Value Chains in South Africa

DOI: 10.5772/intechopen.75710

Wolfgang Johann von Loeper, Scott Drimie and James Blignaut Wolfgang Johann von Loeper, Scott Drimie and James Blignaut

Additional information is available at the end of the chapter Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.75710

#### Abstract

[14] United Nation International Trade Statistics Database (UN Comtrade). Available from:

[15] Akhramovich V, Chubrik A, Shymanovich, G. AGRICISTRADE Country Report: Belarus. Belarus: Research Centre of the Institute for Privatization and Management;

[16] Götz L, Djuric I, Glauben T. Wheat export restrictions in Kazakhstan, Russia, and Ukraine: Impact on prices along the wheat-to-bread supply chain. In: Schmitz A, Meyers WH, editors. Transition to Agricultural Economies: The Future of Kazakhstan, Russia and Ukraine. CABI (Commonwealth Agricultural Bureaux (CAB) International), Wallingford, Oxfordshire, United Kingdom; 2015. pp. 191-203. DOI: 10.1079/9781780645353.0000.ch19

[17] APK-Inform. AgriNews, various issues. Available from: https://www.apk-inform.com/en.

[18] United States Department of Agriculture (USDA). Available from: http://apps.fas.usda.

[20] Djuric I, Götz L. Export restrictions – Do consumers really benefit? The wheat-to-bread supply chain in Serbia. Food Policy. 2016;**63**:112-123. DOI: 10.1016/j.foodpol.2016.07.002.

[21] Götz L, Djuric I, Nivievskyi O. Regional price effects of extreme weather events and wheat export controls in Russia and Ukraine. Journal of Agricultural Economics 2016;**67**(3):

2015. Available from: http://www.agricistrade.eu/document-library

www.comtrade.un.org. 2016

gov/psdonline/psdquery.aspx. 2016

741-763. DOI: 10.1111/1477-9552.12167

[19] Irish Food Board. Available from: www.bordbia.ie. 2016

2016

160 Agricultural Value Chain

The potential of sustaining smallholder farmers (SHFs), for long-term food security remains, within the context of rising modern food value chains, particularly in Africa, a threat. Support for a greener, lower carbon economy that creates jobs and improves human well-being as part of a sustainable and socially inclusive stable economic development should be driven, at least in part, by SHF.

To not disrupt African SHF, but rather support an economic inclusion of them in times of rising modern food value chains, requires an understanding of existing modern agricultural value chains, their functioning and constraints; taking South Africa (SA) as an example that has already seen a strong modernization of its value chains over the last 30 years. Several key questions arise: What are the main shortfalls in agricultural value chains and why are SHFs faced with challenges to feed into such existing structures? What blockages do value chain participants (VCP) themselves identify and how do these further entrench such blockages? From understanding VCPs, where must policy focus for a more inclusive farming system and better food security?

The empirical data we collected from an ethnographic qualitative participant research showed that interviewed VCPs are limited in acting within their economic constraints. We also gained sufficient evidence supporting the view that in contrast to the current struggles and spectacular failures VCPs have experienced with SHF, there is inherent continued willingness to engage with SHFs if risk and limitations were reduced and exposure was mitigated, through the establishment of comprehensive cooperative leadership and field extension that enabled reliability of production quantity and quality from SHF.

Keywords: smallholder farmers, food security, agricultural finance, inclusive socio-economics, food safety, land ownership

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited. © 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

### 1. Introduction

Globally, IAASTD [1] counts 90% of farms to be SHF with less than 2 ha of land; similarly, the Food and Agricultural Organization [2] counts 92.3% of all farmers to be small farms of which 83% are less than 2 ha in size. These SHFs still supply the bulk of food to the global population. South Africa (SA) in contrast has an average farm size of 1400 ha [3]. None the less, 1.6 million citizens (3% of population) are engaged in some form of farming, of which 162,000 are considered formal rural farms whereof only 30,000 are commercial farmers that supply more than 80% of the food in South Africa [4].

long-term food security or rather puts it at risk for the benefit of a few large system operators. This lends weight to the argument that SHFs are a good possible route to a socially and ecologically just and intensified agricultural systems, with the potential, as Wigging [29]

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163

Yet, as Baiphethi and Jacobs [30] contend, only 10% of food for South African households is sourced from subsistence production. The best way in enhancing access to food is through subsistence and SHFs' food production, and because that access is direct, it would also drive

South Africa's government focuses on giving prospective farmers access to land through politically contentious land claims, and is assisting them to become larger commercial operations [31]. This has arguably resulted in a host of projects generally conceived as being unsuccessful. Aliber and Hall [32, 33] argue that instead of considering the base of SHFs as a source for building emerging black commercial farmers and focusing on a few expensive projects, efforts against massive unemployment and poverty should instead leverage the large numbers of subsistence farmers in regions with already existing smallholder farm concentrations in South Africa and to invest into these areas for adaptation, diversification, employment and better food security. This includes, they say, new and more refined market linkages with wider access to supermarkets, decentralized agro-processing supporting smallscale farmers, promotion of land rental and a more participatory approach to agriculture

We argue that SHFs are, by nature, already entrepreneurial in that they produce more than they can eat and sell their excess crops on informal markets and roadsides for economic gain. This entrepreneurial nature can effectively be leveraged by government to increase yields, on

SHFs in South Africa struggle to survive and participate in food value chains, which currently maintain a flow of capital funds through a few large VCPs to a few selected and preferred large crop producers. Not being able to take part in these value chains means exclusion from the capital markets and a general struggle for economic survival, while rural areas remain with the stigma of low opportunity for young people. The system fails SHF on multiple levels, but

In this manuscript we identify existing blockages SHFs face in participating in modern agricultural value chains in SA, as well as which institutions, policies, and VCPs are responsible for such blockages. What blockages do VCPs experience themselves through circumstances exacerbating access problems and how do feedback loops in existing value chains further entrench

mostly on access to education, land, technology, market, and financial services [34].

argues, to produce more food per hectare than large farms.

today still underperforming yield outputs of SHF.

1.2. Research objective and methodology

obstructions inhibiting a participatory framework for SHFs?

down food prices [30].

[32, 33].

1.1. Problem statement

With its mere 0.3% of the population involved in formal rural farming, SA has, compared to developing countries, a much more developed nation structure [5]. Merely 0.06% of the population makes up South Africa's commercial farms [4] and considering a global population of 7 billion with 500 million farmers [2] SA contributes 24 times less to the count of global farmers than it contributes to global population. Still 26% of its population lives in food insecure conditions [6, 7]. For Africa the development of modern agricultural value chains therefore poses a challenge to SHF and SA should be used as a study example, investigating the functioning of such value chains and the threat of a potential economic exclusion of SHF across the African continent.

Africa's SHFs mostly practice low external input and organic agriculture [8, 9]. They sit on small parcels of land with high genetic diversity and under such conditions Altieri et al. [10, 11] argue they have less environmental impact than high external input (HEI) agriculture, as practiced by commercial industrialized farms [12–14]. Soil water conservation practices by these farmers are important for increased yields with significant benefits showing particularly in heat and drought stressed areas and Marenya and Barrett [15] argue that integrated natural resource and soil fertility management have positive feedback on SHF household wealth. Organic farming is ideally suited to SHFs say Hine and Pretty [16] because it relies on naturally available fertility inputs, requires less operating costs, delivers more diversity, and is more resilient to plant stress [16].

These SHFs are less dependent on large multinational corporations for input supplies [11], allowing developing nations to support a less import dependent trading system; whose trade arrangements otherwise typically favor larger farming operations. Because SHFs produce food more organically they can regionally supply crops of higher nutritional value [17–21]. Ponisio [22] argues that organic crops need not be less productive and can still produce between 91 and 96% that of conventional farming [22]. Other research shows that it can also outperform synthetic fertilizers on the continent, increasing yield 2–3 times while remaining drought resilient, produce less CO2 and use 2–7 times less energy [22–24].

While social challenges persevere, environmental degradation, disturbed ecosystems, loss of topsoil, modern human sicknesses, large CO2 emissions [13, 25–28], all due to large scale industrialized conventional agricultural that form the foundation of our modern food system complex, add to the problems and raise the question of whether our food system sustains long-term food security or rather puts it at risk for the benefit of a few large system operators. This lends weight to the argument that SHFs are a good possible route to a socially and ecologically just and intensified agricultural systems, with the potential, as Wigging [29] argues, to produce more food per hectare than large farms.

Yet, as Baiphethi and Jacobs [30] contend, only 10% of food for South African households is sourced from subsistence production. The best way in enhancing access to food is through subsistence and SHFs' food production, and because that access is direct, it would also drive down food prices [30].

South Africa's government focuses on giving prospective farmers access to land through politically contentious land claims, and is assisting them to become larger commercial operations [31]. This has arguably resulted in a host of projects generally conceived as being unsuccessful. Aliber and Hall [32, 33] argue that instead of considering the base of SHFs as a source for building emerging black commercial farmers and focusing on a few expensive projects, efforts against massive unemployment and poverty should instead leverage the large numbers of subsistence farmers in regions with already existing smallholder farm concentrations in South Africa and to invest into these areas for adaptation, diversification, employment and better food security. This includes, they say, new and more refined market linkages with wider access to supermarkets, decentralized agro-processing supporting smallscale farmers, promotion of land rental and a more participatory approach to agriculture [32, 33].

We argue that SHFs are, by nature, already entrepreneurial in that they produce more than they can eat and sell their excess crops on informal markets and roadsides for economic gain. This entrepreneurial nature can effectively be leveraged by government to increase yields, on today still underperforming yield outputs of SHF.

### 1.1. Problem statement

1. Introduction

162 Agricultural Value Chain

than 80% of the food in South Africa [4].

across the African continent.

resilient to plant stress [16].

Globally, IAASTD [1] counts 90% of farms to be SHF with less than 2 ha of land; similarly, the Food and Agricultural Organization [2] counts 92.3% of all farmers to be small farms of which 83% are less than 2 ha in size. These SHFs still supply the bulk of food to the global population. South Africa (SA) in contrast has an average farm size of 1400 ha [3]. None the less, 1.6 million citizens (3% of population) are engaged in some form of farming, of which 162,000 are considered formal rural farms whereof only 30,000 are commercial farmers that supply more

With its mere 0.3% of the population involved in formal rural farming, SA has, compared to developing countries, a much more developed nation structure [5]. Merely 0.06% of the population makes up South Africa's commercial farms [4] and considering a global population of 7 billion with 500 million farmers [2] SA contributes 24 times less to the count of global farmers than it contributes to global population. Still 26% of its population lives in food insecure conditions [6, 7]. For Africa the development of modern agricultural value chains therefore poses a challenge to SHF and SA should be used as a study example, investigating the functioning of such value chains and the threat of a potential economic exclusion of SHF

Africa's SHFs mostly practice low external input and organic agriculture [8, 9]. They sit on small parcels of land with high genetic diversity and under such conditions Altieri et al. [10, 11] argue they have less environmental impact than high external input (HEI) agriculture, as practiced by commercial industrialized farms [12–14]. Soil water conservation practices by these farmers are important for increased yields with significant benefits showing particularly in heat and drought stressed areas and Marenya and Barrett [15] argue that integrated natural resource and soil fertility management have positive feedback on SHF household wealth. Organic farming is ideally suited to SHFs say Hine and Pretty [16] because it relies on naturally available fertility inputs, requires less operating costs, delivers more diversity, and is more

These SHFs are less dependent on large multinational corporations for input supplies [11], allowing developing nations to support a less import dependent trading system; whose trade arrangements otherwise typically favor larger farming operations. Because SHFs produce food more organically they can regionally supply crops of higher nutritional value [17–21]. Ponisio [22] argues that organic crops need not be less productive and can still produce between 91 and 96% that of conventional farming [22]. Other research shows that it can also outperform synthetic fertilizers on the continent, increasing yield 2–3 times while remaining drought

While social challenges persevere, environmental degradation, disturbed ecosystems, loss of topsoil, modern human sicknesses, large CO2 emissions [13, 25–28], all due to large scale industrialized conventional agricultural that form the foundation of our modern food system complex, add to the problems and raise the question of whether our food system sustains

resilient, produce less CO2 and use 2–7 times less energy [22–24].

SHFs in South Africa struggle to survive and participate in food value chains, which currently maintain a flow of capital funds through a few large VCPs to a few selected and preferred large crop producers. Not being able to take part in these value chains means exclusion from the capital markets and a general struggle for economic survival, while rural areas remain with the stigma of low opportunity for young people. The system fails SHF on multiple levels, but mostly on access to education, land, technology, market, and financial services [34].

### 1.2. Research objective and methodology

In this manuscript we identify existing blockages SHFs face in participating in modern agricultural value chains in SA, as well as which institutions, policies, and VCPs are responsible for such blockages. What blockages do VCPs experience themselves through circumstances exacerbating access problems and how do feedback loops in existing value chains further entrench obstructions inhibiting a participatory framework for SHFs?

This study was undertaken as an ethnographic research exploring business cultures and morals using qualitative semi-structured interviews. The selected research participants (VCPs) were based on their involvement in the food value chain and their general size and importance they played; they were not from any particular commodity type, however, because we also interviewed silos and millers of maize, answers from these VCP often hinged around maize, also a main crop type in South Africa [35].

Because insurance is hardly affordable in developing countries, only 1% of households in low

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Linnerooth-Bayer and Mechler also argue that with climate change, associated risks insurance for SHFs will become more important. To Challinor et al. [49], SHFs are expected to have a greater exposure to climate risk due to increased variability of crop productions and the absence of well-functioning crop insurance services. In order to increase SHFs' resilience, the establishment of alternative insurance schemes are required [49]. An example is Juhudi Kilimo in Kenya that adds insurance to its livestock loan at 4% of animal value to protect both itself

A reason why SHFs with sellable surplus crops stay trapped in poverty is the lack of access to markets [50]. A few national retail stores have risen from 10% market share around 1990, to 60% today [51] and dominate the formal food market in South Africa [52]. Large retailers from this "supermarket revolution" work with non-family, corporate agriculture to develop production systems that, via audits, could claim attributes of environmental sustainability and food

Campbell criticizes that certification systems brought about by an "audit culture" that merely serves the interests of retailers and poses considerable hurdles for third world producers, for many of whom it is impossible to adhere to the compliance requirements [53]. While Qaim and Rao [54] argue that this, together with more vertical integration and stricter standards (developing nations' following the pattern of developed nations), can have far-reaching effects on rural development, Snider et al. [55] argue that certification system run through cooperatives in Costa Rica had little financial benefits for the SHF and has induced no

Small producers not only face competition from larger and successively growing producers in their own countries, but also from other countries through increased imports [56, 57]. A large retailer in SA, Shoprite, procures 90% of its fresh fruits and vegetables from large-scale farmers, while Angola's Shoprite stores get 99% of their produce from South Africa. Pick n Pay also sources 70% of their produce in Southern Africa, from South Africa [58]. On the other hand SHF form the "structural backbone" of the rural economy [59], yet the pressure is high on SHFs to adjust to shifts in technology and changes in the market, as well as competition from imports, and if widespread exclusion is observed, SHFs will face difficult

This will spell a disaster of "highest magnitude" argues Magdoff [60], particularly if the "supermarket revolution" trend continues to drive out SHFs globally, a disaster not only for billions currently involved with small scale agriculture Magdoff [60] (p. 116), but also for an entire era of more expensive energy and climate change exacerbated by large industrial agriculture. Parker [61] says: They "… are, in the harsh terms of globalization, superfluous." Modern food systems place SHF on the edge of survival, while others see smallholder farming

income countries have catastrophe coverage [48].

and the insured livestock against illness and death [43].

2.3. Smallholder farmer challenges in accessing markets

increasingly as an essential route out of poverty [62].

safety [53].

widespread change.

times [59].

The interviews were then transcribed to attain primary qualitative data and for the coding and categorizing we used grounded theory as an inductive systematic methodology to analyze qualitative data and give it conceptual structure through categorization of general themes emerging from the data [36–39].

### 2. Existing knowledge on challenges facing SHF

### 2.1. Smallholder farmer challenges in accessing micro-loans

In the view of Delgado [40] barriers arise primarily because markets fail to present solutions, such as micro-credit, to rural African populations. Kirsten and van Zyl [41] argues that credit availability, among others, is either imperfect or missing as accessible service to SHFs, while Ortmann and King [34] argue that high transactional costs for VCP is also due to language barriers; only 36% of SHFs spoke English in two regions in KwaZulu-Natal. Thirty six percent small-scale producers in South Africa, farming on less than 2 ha land, indicated that missing access to credit was the biggest hurdle why they would not be able to access water for irrigation [42].

Bain & Company [43] illustrate examples of other tried and tested models with a list of best practices that underlie the success factor for scalable operations supplying micro-lending that was developed by the Grameen Bank. Swilling [44] criticizes Grameen Bank replicas, saying that such systems either need a critical mass of over 2 million members to finance bureaucracies, or otherwise charge high interest rates. In contrast Blewitt [45] compares the Grameen Bank's principles of loan business to that of Green Entrepreneurship.

Naess et al. believe it is more the responsibility of the government to make farming profitable for SHFs, and ensure access to land, water, and other inputs such as seeds and "approcredit" (appropriate credit) are available [46]. They criticize micro-loans in that they are too small and maintain a micro-status, limiting operational growth and appropriate infrastructure investment. They do not enhance labor's dignity nor do they raise the farmer's negotiation power against traders, or the ability to invest into storage and packaging to add value, altogether being unable to lift the farmer out of poverty [46].

#### 2.2. Smallholder farmer challenges to accessing insurance

Kirsten and van Zyl [41] argue that access to insurance is imperfect or non-existent for smallholders. Many smallholder households in Lesotho do not have any form of insurance [47]. Because insurance is hardly affordable in developing countries, only 1% of households in low income countries have catastrophe coverage [48].

Linnerooth-Bayer and Mechler also argue that with climate change, associated risks insurance for SHFs will become more important. To Challinor et al. [49], SHFs are expected to have a greater exposure to climate risk due to increased variability of crop productions and the absence of well-functioning crop insurance services. In order to increase SHFs' resilience, the establishment of alternative insurance schemes are required [49]. An example is Juhudi Kilimo in Kenya that adds insurance to its livestock loan at 4% of animal value to protect both itself and the insured livestock against illness and death [43].

#### 2.3. Smallholder farmer challenges in accessing markets

This study was undertaken as an ethnographic research exploring business cultures and morals using qualitative semi-structured interviews. The selected research participants (VCPs) were based on their involvement in the food value chain and their general size and importance they played; they were not from any particular commodity type, however, because we also interviewed silos and millers of maize, answers from these VCP often hinged around maize,

The interviews were then transcribed to attain primary qualitative data and for the coding and categorizing we used grounded theory as an inductive systematic methodology to analyze qualitative data and give it conceptual structure through categorization of general themes

In the view of Delgado [40] barriers arise primarily because markets fail to present solutions, such as micro-credit, to rural African populations. Kirsten and van Zyl [41] argues that credit availability, among others, is either imperfect or missing as accessible service to SHFs, while Ortmann and King [34] argue that high transactional costs for VCP is also due to language barriers; only 36% of SHFs spoke English in two regions in KwaZulu-Natal. Thirty six percent small-scale producers in South Africa, farming on less than 2 ha land, indicated that missing access to credit was the biggest hurdle why they would not be able to access water

Bain & Company [43] illustrate examples of other tried and tested models with a list of best practices that underlie the success factor for scalable operations supplying micro-lending that was developed by the Grameen Bank. Swilling [44] criticizes Grameen Bank replicas, saying that such systems either need a critical mass of over 2 million members to finance bureaucracies, or otherwise charge high interest rates. In contrast Blewitt [45] compares the Grameen

Naess et al. believe it is more the responsibility of the government to make farming profitable for SHFs, and ensure access to land, water, and other inputs such as seeds and "approcredit" (appropriate credit) are available [46]. They criticize micro-loans in that they are too small and maintain a micro-status, limiting operational growth and appropriate infrastructure investment. They do not enhance labor's dignity nor do they raise the farmer's negotiation power against traders, or the ability to invest into storage and packaging to add value, altogether

Kirsten and van Zyl [41] argue that access to insurance is imperfect or non-existent for smallholders. Many smallholder households in Lesotho do not have any form of insurance [47].

also a main crop type in South Africa [35].

2. Existing knowledge on challenges facing SHF

2.1. Smallholder farmer challenges in accessing micro-loans

Bank's principles of loan business to that of Green Entrepreneurship.

being unable to lift the farmer out of poverty [46].

2.2. Smallholder farmer challenges to accessing insurance

emerging from the data [36–39].

164 Agricultural Value Chain

for irrigation [42].

A reason why SHFs with sellable surplus crops stay trapped in poverty is the lack of access to markets [50]. A few national retail stores have risen from 10% market share around 1990, to 60% today [51] and dominate the formal food market in South Africa [52]. Large retailers from this "supermarket revolution" work with non-family, corporate agriculture to develop production systems that, via audits, could claim attributes of environmental sustainability and food safety [53].

Campbell criticizes that certification systems brought about by an "audit culture" that merely serves the interests of retailers and poses considerable hurdles for third world producers, for many of whom it is impossible to adhere to the compliance requirements [53]. While Qaim and Rao [54] argue that this, together with more vertical integration and stricter standards (developing nations' following the pattern of developed nations), can have far-reaching effects on rural development, Snider et al. [55] argue that certification system run through cooperatives in Costa Rica had little financial benefits for the SHF and has induced no widespread change.

Small producers not only face competition from larger and successively growing producers in their own countries, but also from other countries through increased imports [56, 57]. A large retailer in SA, Shoprite, procures 90% of its fresh fruits and vegetables from large-scale farmers, while Angola's Shoprite stores get 99% of their produce from South Africa. Pick n Pay also sources 70% of their produce in Southern Africa, from South Africa [58]. On the other hand SHF form the "structural backbone" of the rural economy [59], yet the pressure is high on SHFs to adjust to shifts in technology and changes in the market, as well as competition from imports, and if widespread exclusion is observed, SHFs will face difficult times [59].

This will spell a disaster of "highest magnitude" argues Magdoff [60], particularly if the "supermarket revolution" trend continues to drive out SHFs globally, a disaster not only for billions currently involved with small scale agriculture Magdoff [60] (p. 116), but also for an entire era of more expensive energy and climate change exacerbated by large industrial agriculture. Parker [61] says: They "… are, in the harsh terms of globalization, superfluous." Modern food systems place SHF on the edge of survival, while others see smallholder farming increasingly as an essential route out of poverty [62].

### 2.4. Smallholder farmers milling and agro-processing

Rural, low-income areas have small, informal traders to which SHFs sell. Supermarkets on the other hand are able to undercut informal traders who are exposed to the risk of being ultimately crowded out by supermarket stores, increasing the risk of SHF survival [5, 63]. However, Godfray et al. [64] argue that there is an opportunity for food security in poorer regions with improved technology for small-scale food storage in a network of small scale traders, millers and producers.

Three of the four banks agreed with our question, whether crop in itself would suffice as an alternative form of collateral, but they said it would then need to be attached to an offtake

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The two banks that did not supply micro-loans said that access to common land would not qualify them for loans, it would have to be documented land tenure in form of ownership or lease agreements. Support in the form of a mentor, or a business development, most banks said would also constitute a de-risk for them in their decision making of supplying micro-loans. To them financial acumen mitigated production-, marketing-, and financial risks and would validate the supply of future micro-loan products, if education were able to drive a change in

Historically, two banks had made bad experiences, where they had to write off debt: one bank lost 60% of a R3bn exposure. Subsequently one of the two banks backed off from supplying micro-loans and is not planning any new products tailored to SHFs. The other bank continues to supply SHFs with micro-loans. This bank also indicated that there were a host of challenges with micro-loans one being that their transaction costs were unprofitably expensive, making it

All banks agreed that certain processes, compliance requirements and general customer costs they needed to bear made it unlucrative to serve very small loans. Getting FICA (Financial Intelligence Centre Act) requirements in place for clients far out in rural areas compounded the problem and with often missing identification documents, it would include having to establish identity and domicile in rural Africa, this alone disqualified many applicants. As opposed to one large farmer, with a R2m credit and little risk, 1000 SHFs with a credit each of R2,000, would be hugely more expensive, and at the same time expose them to high levels of risk and

One bank channeled their farmer micro-loan offering through their private loans division and not the agricultural business loans. They said their loans were used to buy seeds, repay debt, and to transport produce to market. First time applicants to their loans did not have it as easy as second or third time applicants. First time applicants would typically start with R500 and a tenure of 6 months, at prime plus 3%. In later rounds, the loans could increase to R1000 over

The three banks not supplying micro-loans argued that although they wanted to fund that market space, there was no specific model that would make business sense. The fourth bank that did supply micro-loans was offering it as a part of a total value offering and part of the financial services charter, assisting emerging agriculture. In Kenya, these banks stated, it had a successful micro-loan scheme because it had access to the applicants via cell-phone technology. On our questions of government grants, one bank thought that knowledge and education were factors that made a farmer productive and would be better than grants. That bank argued that grants could kick-start businesses and create a success environment if applied correctly, but criticized the government for running unsuccessful grant projects, due to the disjuncture within government departments, that made SHF dependent on continued grant funding. Two of the four respondents were of the opinion that the primary responsibility for developing

agreements backed by an insurance that could pay the loan in case of failure.

SHF mentality.

a philanthropic offering to their bank.

default because the loans were relatively unsecured.

12 months and even up to R5000 with an established track record.

Mahlogedi and Thindisa [65] argue that agro-processing for SHF creates added value and has the ability to improve the livelihoods of SHF. However, they also say that would require sufficient human and social capital from the SHF.

Local and subsistence food production is the best readily available route to food security in South Africa [30]. Baiphethi and Jacobs also believe that "rural households continue to value the pursuit of farming activities and that subsistence production is important to improve household food security" [30]. Similarly, Jayne et al. believe that any "realistic discussions of poverty alleviation strategies in Africa need to be in the context of access to land, […] there is a strong relationship between access to land and household income" [66].

### 3. Value chain research findings

Our research findings from the interviewed VCP are summed up as follows:

#### 3.1. Banks

We interviewed four of the largest commercial banks in South Africa, all of whom have, in one way or another, engaged with supplying credit to SHFs or emerging commercial farmers. Their views around what constituted micro-lending or SHF loans, varied drastically, ranging from loans of R500 for one bank to R100,000 for another bank. One bank said a R3m turnover was a minimum limit.

While one bank had a classic agricultural micro-loan, all other banks did not have a product tailored for SHFs. Two banks responded saying that SHF could use their bank's private loans of R500 instead of their classic agricultural loans which were designed for larger commercial farmers. One bank had an engagement another large VCP, through which SHF could access micro-loans for crop production.

The reasons why banks were unwilling to engage SHFs with products and services, they argued that their commercial mandate was focused on larger commercial farms that had collaterals, track records and economies of scale. Banks had an obligation, all respondents said, to find out where risk reducing factors existed that constituted repayment ability and affordability of the loan. This SHF with their experience, were not able to do. Access to decent financial histories to support an application for a loan were generally missing, without which it would be reckless lending and prohibited by the SA Credit Act.

Three of the four banks agreed with our question, whether crop in itself would suffice as an alternative form of collateral, but they said it would then need to be attached to an offtake agreements backed by an insurance that could pay the loan in case of failure.

2.4. Smallholder farmers milling and agro-processing

sufficient human and social capital from the SHF.

3. Value chain research findings

millers and producers.

166 Agricultural Value Chain

3.1. Banks

was a minimum limit.

micro-loans for crop production.

Rural, low-income areas have small, informal traders to which SHFs sell. Supermarkets on the other hand are able to undercut informal traders who are exposed to the risk of being ultimately crowded out by supermarket stores, increasing the risk of SHF survival [5, 63]. However, Godfray et al. [64] argue that there is an opportunity for food security in poorer regions with improved technology for small-scale food storage in a network of small scale traders,

Mahlogedi and Thindisa [65] argue that agro-processing for SHF creates added value and has the ability to improve the livelihoods of SHF. However, they also say that would require

Local and subsistence food production is the best readily available route to food security in South Africa [30]. Baiphethi and Jacobs also believe that "rural households continue to value the pursuit of farming activities and that subsistence production is important to improve household food security" [30]. Similarly, Jayne et al. believe that any "realistic discussions of poverty alleviation strategies in Africa need to be in the context of access to land, […] there is a

We interviewed four of the largest commercial banks in South Africa, all of whom have, in one way or another, engaged with supplying credit to SHFs or emerging commercial farmers. Their views around what constituted micro-lending or SHF loans, varied drastically, ranging from loans of R500 for one bank to R100,000 for another bank. One bank said a R3m turnover

While one bank had a classic agricultural micro-loan, all other banks did not have a product tailored for SHFs. Two banks responded saying that SHF could use their bank's private loans of R500 instead of their classic agricultural loans which were designed for larger commercial farmers. One bank had an engagement another large VCP, through which SHF could access

The reasons why banks were unwilling to engage SHFs with products and services, they argued that their commercial mandate was focused on larger commercial farms that had collaterals, track records and economies of scale. Banks had an obligation, all respondents said, to find out where risk reducing factors existed that constituted repayment ability and affordability of the loan. This SHF with their experience, were not able to do. Access to decent financial histories to support an application for a loan were generally missing, without which it

would be reckless lending and prohibited by the SA Credit Act.

strong relationship between access to land and household income" [66].

Our research findings from the interviewed VCP are summed up as follows:

The two banks that did not supply micro-loans said that access to common land would not qualify them for loans, it would have to be documented land tenure in form of ownership or lease agreements. Support in the form of a mentor, or a business development, most banks said would also constitute a de-risk for them in their decision making of supplying micro-loans. To them financial acumen mitigated production-, marketing-, and financial risks and would validate the supply of future micro-loan products, if education were able to drive a change in SHF mentality.

Historically, two banks had made bad experiences, where they had to write off debt: one bank lost 60% of a R3bn exposure. Subsequently one of the two banks backed off from supplying micro-loans and is not planning any new products tailored to SHFs. The other bank continues to supply SHFs with micro-loans. This bank also indicated that there were a host of challenges with micro-loans one being that their transaction costs were unprofitably expensive, making it a philanthropic offering to their bank.

All banks agreed that certain processes, compliance requirements and general customer costs they needed to bear made it unlucrative to serve very small loans. Getting FICA (Financial Intelligence Centre Act) requirements in place for clients far out in rural areas compounded the problem and with often missing identification documents, it would include having to establish identity and domicile in rural Africa, this alone disqualified many applicants. As opposed to one large farmer, with a R2m credit and little risk, 1000 SHFs with a credit each of R2,000, would be hugely more expensive, and at the same time expose them to high levels of risk and default because the loans were relatively unsecured.

One bank channeled their farmer micro-loan offering through their private loans division and not the agricultural business loans. They said their loans were used to buy seeds, repay debt, and to transport produce to market. First time applicants to their loans did not have it as easy as second or third time applicants. First time applicants would typically start with R500 and a tenure of 6 months, at prime plus 3%. In later rounds, the loans could increase to R1000 over 12 months and even up to R5000 with an established track record.

The three banks not supplying micro-loans argued that although they wanted to fund that market space, there was no specific model that would make business sense. The fourth bank that did supply micro-loans was offering it as a part of a total value offering and part of the financial services charter, assisting emerging agriculture. In Kenya, these banks stated, it had a successful micro-loan scheme because it had access to the applicants via cell-phone technology.

On our questions of government grants, one bank thought that knowledge and education were factors that made a farmer productive and would be better than grants. That bank argued that grants could kick-start businesses and create a success environment if applied correctly, but criticized the government for running unsuccessful grant projects, due to the disjuncture within government departments, that made SHF dependent on continued grant funding. Two of the four respondents were of the opinion that the primary responsibility for developing emerging agriculture lay with the state and the Land Bank. In this light the Kula-Scheme was also criticized for burdening their bank with bureaucracy in form of qualifying criteria and project management.

interview with senior employees of these organizations responsible for the purchasing of farm

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One of the retailers said that they almost exclusively bought commercial volumes and that SHFs were ever only going to be a very small part of that supply. They supplied reliable commercial growers with growing programs to which both parties committed. A SHF in comparison was an unreliable source for multiple reasons on which they could not rely. This retailer also said that SHFs lend themselves to niche, high value, out of season production and could make a success there. The new BEE code, requiring them to source more from SHF,

The second retailer said that they worked with fresh produce SHFs, mainly in Limpopo, through their formal pack-houses and central procurement. This retailer also said that they allowed their store owners to procure, outside of their central procurement system, directly from smaller farmers. This was mostly done without cooperatives being present, but nevertheless resulted in problems with consistency and uncoordinated supply, which the store owners

That retailer considered SHF farmers as ones with more than 5 ha of land, and they did not think one could farm sustainably on 2 ha of land or less, other than maybe through a cooperative system. For these SHF the food safety and quality requirements like Global GAP, Tesco Nature's Choice, or GFSI, are almost impossible to adhere to they said and therefore they created their own "Local-GAP" for SHF as compliance capacity-building with a chance to step up to Global GAP. All three retailers are concerned about SHFs ability to comply with food

The third retailer claimed that they did not work with SHFs as their scale was too small and that they would need to pool 50 or 60 farmers together and manage them to get the produce they needed. They have had no SHFs projects in the past and are not planning any in the future. While this was their cooperate approach they said, their individual franchises would be able to procure directly from SHFs in their vicinity, which even then in their opinion would be

In response to how government could get involved, one retailer said that government should facilitate systems where successful commercial farmers mentored SHFs collaboratively alongside a market access to retailers. To them, the retailers have the expertise, the network and

The second retailer was of the opinion that there were three levels with which the government should engage. First, to assist SHF in attaining finance, second, to raise the skill of SHFs to run better farms and businesses, and third, to assist with entry level food safety and compliance

The third retailer was of the opinion that money was not needed, and that it was the infrastructure and system around SHFs that role players, such as banks, retailers, and especially government, needed to create. This retailer said that it would need to be a whole number of things that are required to fall in place, and that somebody needs to take control of and

accountability, while the government has the money to facilitate such engagements.

would change things dramatically, but would nonetheless pose a challenge to them.

accepted because of the higher margins they made by procuring directly from SHF.

safety standards, which was essential and needed to stay in place.

produce.

too small in scale.

schemes.

manage it; best would be the government.

The principle opinion of two banks was that, South Africa needed an integrated policy framework, where the Land Bank, with an increased mandate for SHFs, and other organs of state, all played a part in driving agricultural-entrepreneurship to alleviate poverty. Corporate social investment (CSI) funding could assist, but currently is "wasted" money, as most of the projects ended up as write-offs.

One bank suggested that the government could also institute a guarantee fund for commercial banks to claim from, if bad debt and failures specific to this market occurred. Preferably, this should work in combination with a farm-level two-year grant for inputs and education. Most banks perceived existing extension offices to be unsuccessful, nonetheless, all banks believed that a form of mentorship for life-, financial-, and farming skill was essential to make sure money was utilized responsibly. The banks could not provide extension services, as they would then take default risk to the loan they supplied.

Only one bank showed a concern around our question of land ownership. They suggested the creation of a system that would enable SHF to have title deeds, which would develop a local property economy where successful SHFs would be able to buy additional 2 ha close by. Having title to their land would enable them to fully secure their facilities and grow their business. This would create a spirit of entrepreneurship among SHFs this bank argued. Another bank claimed that land ownership would help as a collateral, it was of less importance to them if other collaterals were in place, such as access to market and offtake, coupled possibly to insurance.

Although all four banks quoted FICA and the Credit Act as posing challenges to supply microloans to SHFs, only one bank suggested a change of that legislation. One bank argued that policy makers should rather look for successes in other African countries where cooperatives created successful farming ecosystem that enabled the successful supplying of micro-loans. A government guarantee scheme for drought failure, for example, to de-risk banks, could work through cooperatives and target not just one, but 20 or 30 farmers, with one collateral manager who helped control production schemes. Cooperatives worked in the mind of this bank, because of scale, where many SHFs pooled their maize together, reducing transactional costs to market. The Land Bank could assist they said.

A cooperative, another bank believed, can be very important, if it is a commercial co-op with a good existing integration into the value chain that can function as a service provider in terms of information flow, technical expertise, and possibly a funds disseminator. This bank though, also said that it was not necessary to pool every SHF into cooperatives, especially if the SHFs had access to good local market they could serve.

### 3.2. Supermarkets

Our interview base covered three major retailers in South Africa, all of whom had some form of engagement with SHFs or emerging farmers. The authors planned and conducted the interview with senior employees of these organizations responsible for the purchasing of farm produce.

emerging agriculture lay with the state and the Land Bank. In this light the Kula-Scheme was also criticized for burdening their bank with bureaucracy in form of qualifying criteria and

The principle opinion of two banks was that, South Africa needed an integrated policy framework, where the Land Bank, with an increased mandate for SHFs, and other organs of state, all played a part in driving agricultural-entrepreneurship to alleviate poverty. Corporate social investment (CSI) funding could assist, but currently is "wasted" money, as most of the projects

One bank suggested that the government could also institute a guarantee fund for commercial banks to claim from, if bad debt and failures specific to this market occurred. Preferably, this should work in combination with a farm-level two-year grant for inputs and education. Most banks perceived existing extension offices to be unsuccessful, nonetheless, all banks believed that a form of mentorship for life-, financial-, and farming skill was essential to make sure money was utilized responsibly. The banks could not provide extension services, as they

Only one bank showed a concern around our question of land ownership. They suggested the creation of a system that would enable SHF to have title deeds, which would develop a local property economy where successful SHFs would be able to buy additional 2 ha close by. Having title to their land would enable them to fully secure their facilities and grow their business. This would create a spirit of entrepreneurship among SHFs this bank argued. Another bank claimed that land ownership would help as a collateral, it was of less importance to them if other collaterals were in place, such as access to market and offtake, coupled

Although all four banks quoted FICA and the Credit Act as posing challenges to supply microloans to SHFs, only one bank suggested a change of that legislation. One bank argued that policy makers should rather look for successes in other African countries where cooperatives created successful farming ecosystem that enabled the successful supplying of micro-loans. A government guarantee scheme for drought failure, for example, to de-risk banks, could work through cooperatives and target not just one, but 20 or 30 farmers, with one collateral manager who helped control production schemes. Cooperatives worked in the mind of this bank, because of scale, where many SHFs pooled their maize together, reducing transactional costs

A cooperative, another bank believed, can be very important, if it is a commercial co-op with a good existing integration into the value chain that can function as a service provider in terms of information flow, technical expertise, and possibly a funds disseminator. This bank though, also said that it was not necessary to pool every SHF into cooperatives, especially if the SHFs

Our interview base covered three major retailers in South Africa, all of whom had some form of engagement with SHFs or emerging farmers. The authors planned and conducted the

project management.

168 Agricultural Value Chain

ended up as write-offs.

possibly to insurance.

3.2. Supermarkets

would then take default risk to the loan they supplied.

to market. The Land Bank could assist they said.

had access to good local market they could serve.

One of the retailers said that they almost exclusively bought commercial volumes and that SHFs were ever only going to be a very small part of that supply. They supplied reliable commercial growers with growing programs to which both parties committed. A SHF in comparison was an unreliable source for multiple reasons on which they could not rely. This retailer also said that SHFs lend themselves to niche, high value, out of season production and could make a success there. The new BEE code, requiring them to source more from SHF, would change things dramatically, but would nonetheless pose a challenge to them.

The second retailer said that they worked with fresh produce SHFs, mainly in Limpopo, through their formal pack-houses and central procurement. This retailer also said that they allowed their store owners to procure, outside of their central procurement system, directly from smaller farmers. This was mostly done without cooperatives being present, but nevertheless resulted in problems with consistency and uncoordinated supply, which the store owners accepted because of the higher margins they made by procuring directly from SHF.

That retailer considered SHF farmers as ones with more than 5 ha of land, and they did not think one could farm sustainably on 2 ha of land or less, other than maybe through a cooperative system. For these SHF the food safety and quality requirements like Global GAP, Tesco Nature's Choice, or GFSI, are almost impossible to adhere to they said and therefore they created their own "Local-GAP" for SHF as compliance capacity-building with a chance to step up to Global GAP. All three retailers are concerned about SHFs ability to comply with food safety standards, which was essential and needed to stay in place.

The third retailer claimed that they did not work with SHFs as their scale was too small and that they would need to pool 50 or 60 farmers together and manage them to get the produce they needed. They have had no SHFs projects in the past and are not planning any in the future. While this was their cooperate approach they said, their individual franchises would be able to procure directly from SHFs in their vicinity, which even then in their opinion would be too small in scale.

In response to how government could get involved, one retailer said that government should facilitate systems where successful commercial farmers mentored SHFs collaboratively alongside a market access to retailers. To them, the retailers have the expertise, the network and accountability, while the government has the money to facilitate such engagements.

The second retailer was of the opinion that there were three levels with which the government should engage. First, to assist SHF in attaining finance, second, to raise the skill of SHFs to run better farms and businesses, and third, to assist with entry level food safety and compliance schemes.

The third retailer was of the opinion that money was not needed, and that it was the infrastructure and system around SHFs that role players, such as banks, retailers, and especially government, needed to create. This retailer said that it would need to be a whole number of things that are required to fall in place, and that somebody needs to take control of and manage it; best would be the government.

### 3.3. Traders with silos and milling

Both interviewed traders were not buying from SHFs. They said they were mostly procuring from other traders and only in a very few cases directly from usually larger farmers. The new Black Economic Empowerment Code (BEE) in SA also did not require them to buy from SHFs. While both traders said that they were not giving credits, seeds, or input supplies to SHFs, one trader said that such support might be possible through their Enterprise Development funding, but that there was additionally also a new department in the making that was going to specifically focus on socially just procurement in the future for their company.

Two insurers also indicated that South Africa was one of the very few countries in the world where the government did not subsidize agricultural insurance. One insurance said that the government should think about subsidizing insurance as an alternative to a national backup fund, as such a subsidy would be able to reduce the cost burden of the high backup capital to be carried by the insurers. The private industry backup capital could replace the idea of having a national backup fund and with that reduce costs of operating premiums. The fall-outs would be easier to carry due to a potentially much larger client base, where even SHF could be served

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Other mentioned challenges were the transacting of payments from and to SHF and the expectations both parties had on and against a claim; unlike commercial farmers who understood insurance concepts very well. Subsequently a cost-effective service delivery is a challenge, particularly on products of less than R100, where agents would make next to no money.

The collected qualitative data was transcribed and systematically coded and categorized using grounded theory methods to gain structure of more quantitative nature, summed up here into

While 77.1% of surveyed VCP do not engage with SHFs today, the willingness to engage in future with SHFs is three times the current engagement. This willingness was limited to the assumption that other VCPs would also start to engage SHF more than they did now. In other

Of all limitations landownership is the last issue why VCP do not to engage with SHF. However, relative to other limitations a higher standard deviation indicates that, in particular Banks disagree, which is understandable, as they use land ownership as collateral. Second least important to the financial institutions were FICA, credit act and FSB regulations. More important are compliance with food safety and Gap standards; both banks and retailers vote

SHFs Yes (%) No (%) Yes (%) No (%) Banks [4] 25.0 75.0 50.0 50.0 Insurers [3] 66.7 33.3 100.0 0.0 Traders [2] 0.0 100.0 50.0 50.0 Retailers [3] 0.0 100.0 66.7 33.3 TOTAL 22.9 77.1 66.7 33.3

Serving SHFs today? Serving SHFs in future?

words a collective effort would entice a joint effort supported by 2/3rd of all VCPs.

easier.

4. Discussion

4.1. Summary of data

two tables (Table 1, Table 2):

Table 1. Serving SHFs today and tomorrow?

One of the traders said they would love to support small-scale farmers and pay them marketrelated prices, but these would need to supply trucks loads of greater than 30 tons for effective scale. For SHFs, getting to the market would be the biggest challenge, they said; they also did not think that any other traders wanted to take any risk with SHFs.

On the question of how government could play a role, one trader said it could assist in pulling together many small-scale farmers into a corporative, where it became viable to have one contract with a community to buy 30 or 100 tons, where minimum truckloads were 35 tons to get the crop to Randfontein. The second trader said the government needed to empower SHFs first, with subsidies to decrease input costs and secondly with field extension to increase outputs. Other than that, this trader responded, the government should just stay out of economics.

#### 3.4. Insurers

We interviewed three of the largest insurers in SA, who together covered more than 80% of the insurance market in South Africa. Two of the three insurers claimed that they already had a product with which they served SHF, but with a focus on livestock and not crop insurance. The third insurance company said that they currently had no micro-insurance product for SHF, but that they have had engagements in the past. To this insurer the traditional underwriting model suited commercial farmers and not SHF because historic data and proof of affordability on their balance sheets was missing.

Nevertheless, this insurer indicated that they were busy with the Land Bank and the International Climate Insurance Fund to build a new product for SHF. Another insurer indicated that it was busy with a National Emergent Red Meat Producers' Organization (NERPO) and Grain SA project. Generally, all three insurances agreed that there was not sufficient historic financial data from SHF that would enable them to supply classical crop insurance. One insurer said that the high capital backup requirement of 120% was costly to run even for commercial farmers. The assessment of doing pre-emergence, post-emergence and loss-reporting further drove up the costs, in particular for SHF. Subsequently two insurers were of the opinion that the Financial Services Board (FSB) should deregulate indexed insurance which would vastly reduce costs of supplying insurance to both commercial and SHF, in which case simple climatic models would trigger pay outs. However, this would still need to be tested and two insurers indicated that attaining meteorological data for rural SHF was in most cases very difficult.

Two insurers also indicated that South Africa was one of the very few countries in the world where the government did not subsidize agricultural insurance. One insurance said that the government should think about subsidizing insurance as an alternative to a national backup fund, as such a subsidy would be able to reduce the cost burden of the high backup capital to be carried by the insurers. The private industry backup capital could replace the idea of having a national backup fund and with that reduce costs of operating premiums. The fall-outs would be easier to carry due to a potentially much larger client base, where even SHF could be served easier.

Other mentioned challenges were the transacting of payments from and to SHF and the expectations both parties had on and against a claim; unlike commercial farmers who understood insurance concepts very well. Subsequently a cost-effective service delivery is a challenge, particularly on products of less than R100, where agents would make next to no money.

### 4. Discussion

3.3. Traders with silos and milling

170 Agricultural Value Chain

out of economics.

their balance sheets was missing.

3.4. Insurers

difficult.

Both interviewed traders were not buying from SHFs. They said they were mostly procuring from other traders and only in a very few cases directly from usually larger farmers. The new Black Economic Empowerment Code (BEE) in SA also did not require them to buy from SHFs. While both traders said that they were not giving credits, seeds, or input supplies to SHFs, one trader said that such support might be possible through their Enterprise Development funding, but that there was additionally also a new department in the making that was going

One of the traders said they would love to support small-scale farmers and pay them marketrelated prices, but these would need to supply trucks loads of greater than 30 tons for effective scale. For SHFs, getting to the market would be the biggest challenge, they said; they also did

On the question of how government could play a role, one trader said it could assist in pulling together many small-scale farmers into a corporative, where it became viable to have one contract with a community to buy 30 or 100 tons, where minimum truckloads were 35 tons to get the crop to Randfontein. The second trader said the government needed to empower SHFs first, with subsidies to decrease input costs and secondly with field extension to increase outputs. Other than that, this trader responded, the government should just stay

We interviewed three of the largest insurers in SA, who together covered more than 80% of the insurance market in South Africa. Two of the three insurers claimed that they already had a product with which they served SHF, but with a focus on livestock and not crop insurance. The third insurance company said that they currently had no micro-insurance product for SHF, but that they have had engagements in the past. To this insurer the traditional underwriting model suited commercial farmers and not SHF because historic data and proof of affordability on

Nevertheless, this insurer indicated that they were busy with the Land Bank and the International Climate Insurance Fund to build a new product for SHF. Another insurer indicated that it was busy with a National Emergent Red Meat Producers' Organization (NERPO) and Grain SA project. Generally, all three insurances agreed that there was not sufficient historic financial data from SHF that would enable them to supply classical crop insurance. One insurer said that the high capital backup requirement of 120% was costly to run even for commercial farmers. The assessment of doing pre-emergence, post-emergence and loss-reporting further drove up the costs, in particular for SHF. Subsequently two insurers were of the opinion that the Financial Services Board (FSB) should deregulate indexed insurance which would vastly reduce costs of supplying insurance to both commercial and SHF, in which case simple climatic models would trigger pay outs. However, this would still need to be tested and two insurers indicated that attaining meteorological data for rural SHF was in most cases very

to specifically focus on socially just procurement in the future for their company.

not think that any other traders wanted to take any risk with SHFs.

### 4.1. Summary of data

The collected qualitative data was transcribed and systematically coded and categorized using grounded theory methods to gain structure of more quantitative nature, summed up here into two tables (Table 1, Table 2):

While 77.1% of surveyed VCP do not engage with SHFs today, the willingness to engage in future with SHFs is three times the current engagement. This willingness was limited to the assumption that other VCPs would also start to engage SHF more than they did now. In other words a collective effort would entice a joint effort supported by 2/3rd of all VCPs.

Of all limitations landownership is the last issue why VCP do not to engage with SHF. However, relative to other limitations a higher standard deviation indicates that, in particular Banks disagree, which is understandable, as they use land ownership as collateral. Second least important to the financial institutions were FICA, credit act and FSB regulations. More important are compliance with food safety and Gap standards; both banks and retailers vote


Table 1. Serving SHFs today and tomorrow?


leadership, access to market, education, funding, and also logistics. Compliance to food safety standards was a very important limitation to banks and retailers. All these limitations were more important to the VCPs than legislative and regulative requirements or land ownership. This raises the question, whether the SA, and other African, governments' policies are on an effective road by largely focusing on land ownership, often politically contentious. To all VCPs land ownership was by far the smallest concern. Even to banks, to whom an obvious de-risk factor is land as a collateral, land tenure with the ability to create profit was more important to them than land ownership, which neither is a guarantee for good land custodianship nor profitability. Lease agreements from communal land in a more traditional environment would be sufficient to the banks. The concept of dropping land ownership policies in favor of communal lease tenure and cooperative engagement with commercial farmers pose a challenge to many policy makers in SA, as most commercial farmers are considered historic rivals. Blignaut et al. [68] found in their field report, that only 1.8% of their respondent thought that

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landownership for emerging farmers was an important part for policy considerations.

financial institutions due to less credit needs.

profession to pursue or make a success of.

5. Conclusion

Understanding the challenges of the system from all conducted interviews, for government in particular, we can say policy should focus on cooperative leadership in combination with larger commercial farmers and off-takers to solve limitations in form of access to market and logistics. Making funding available, for such new systems, that did not create SHFs dependencies on grants, together with education would have the potential to solve the most important problems facing SHFs. If education were then additionally to focused on low external inputs and agroecological principles, reducing the need for expensive inputs, it would not only reduce the dependency on multinational corporations, their product imports and complicated logistics, it would increase local food sovereignty and reduce the risk of engagement for

Such a systems approach would likely raise the interest of existing VCPs to engage with SHFs, because as risk reduces, a chance for profitability increases. Two-third of all VCPs have indicated that they would increase their engagement within months after they saw risk was reduced and other VCPs started working with SHFs. However, any such commercialization effort to Poole et al. [69] should have a decided mindset and must consider local complexities in order to get into the "hearts and minds" of the SHF, as otherwise it may not be an attractive

We have challenged the notion whether South Africa's current food system has the ability to sustain long-term food security, in which the existing food complex dictates the flow of economies and favors large industrialized agriculture, while marginalizing small and microfood producers. We furthermore argue that other African countries, in a development drive to modernize food value chains, should not exclude SHFs from benefitting as well, as there is a lot of food security potential residing with SHFs. Yet, as our interview results have shown,

Table 2. Limitations inhibiting both SHFs and VCPs.

them as second most important. All interviewees agree that cooperative leadership is the most important limitation that SHF and their own institutions face. Ma and Abdulai [67] have also shown in their studies that cooperative membership has a significant positive impact for SHF on yields, net returns and household incomes.

Next important to all interviewees are education and logistics and after that access to market and funding where for both the VCPs also seem to agree, with a small standard deviation.

The reader must keep in mind that due to the concentration of large organizations in the South African value chain the sample size is relatively small. However, the comparatively low standard deviation lends value to the research findings; in particular, where more than 80% of VCPs agree that cooperative leadership, access to market, education and funding are the most important limitations that need solutions.

### 4.2. Policy debate

While some VCP had "spectacular" failures working with SHFs in Africa, most do not engage SHFs to avoid risk. However, the willingness to engage SHFs in future within a more functional economic system favoring SHFs is high.

From our categorized limitations, all limitations increased the risk for any of the VCP to engage with SHFs. Subsequently reducing the exposure to risk for VCPs is likely to create a more interesting environment for them to working with SHFs. Policy therefore should focus on risk reducing concepts and limitations as prioritized in Table 2.

Within the current legal framework of the Credit Act, the rulings for insurance pay-outs by the Financial Services Board (FSB), and FICA, the financial industries, banks and insurances are limited to serve larger commercial farms and forced to ignore SHFs. Yet more important to the financial services as well as the traders and retailers were limitations related to cooperative leadership, access to market, education, funding, and also logistics. Compliance to food safety standards was a very important limitation to banks and retailers. All these limitations were more important to the VCPs than legislative and regulative requirements or land ownership.

This raises the question, whether the SA, and other African, governments' policies are on an effective road by largely focusing on land ownership, often politically contentious. To all VCPs land ownership was by far the smallest concern. Even to banks, to whom an obvious de-risk factor is land as a collateral, land tenure with the ability to create profit was more important to them than land ownership, which neither is a guarantee for good land custodianship nor profitability. Lease agreements from communal land in a more traditional environment would be sufficient to the banks. The concept of dropping land ownership policies in favor of communal lease tenure and cooperative engagement with commercial farmers pose a challenge to many policy makers in SA, as most commercial farmers are considered historic rivals. Blignaut et al. [68] found in their field report, that only 1.8% of their respondent thought that landownership for emerging farmers was an important part for policy considerations.

Understanding the challenges of the system from all conducted interviews, for government in particular, we can say policy should focus on cooperative leadership in combination with larger commercial farmers and off-takers to solve limitations in form of access to market and logistics. Making funding available, for such new systems, that did not create SHFs dependencies on grants, together with education would have the potential to solve the most important problems facing SHFs. If education were then additionally to focused on low external inputs and agroecological principles, reducing the need for expensive inputs, it would not only reduce the dependency on multinational corporations, their product imports and complicated logistics, it would increase local food sovereignty and reduce the risk of engagement for financial institutions due to less credit needs.

Such a systems approach would likely raise the interest of existing VCPs to engage with SHFs, because as risk reduces, a chance for profitability increases. Two-third of all VCPs have indicated that they would increase their engagement within months after they saw risk was reduced and other VCPs started working with SHFs. However, any such commercialization effort to Poole et al. [69] should have a decided mindset and must consider local complexities in order to get into the "hearts and minds" of the SHF, as otherwise it may not be an attractive profession to pursue or make a success of.

### 5. Conclusion

them as second most important. All interviewees agree that cooperative leadership is the most important limitation that SHF and their own institutions face. Ma and Abdulai [67] have also shown in their studies that cooperative membership has a significant positive impact for SHF

10.5 21.0 11.0 12.9 21.8 11.8 8.4 8.2

Next important to all interviewees are education and logistics and after that access to market and funding where for both the VCPs also seem to agree, with a small standard deviation.

The reader must keep in mind that due to the concentration of large organizations in the South African value chain the sample size is relatively small. However, the comparatively low standard deviation lends value to the research findings; in particular, where more than 80% of VCPs agree that cooperative leadership, access to market, education and funding are the

While some VCP had "spectacular" failures working with SHFs in Africa, most do not engage SHFs to avoid risk. However, the willingness to engage SHFs in future within a more func-

From our categorized limitations, all limitations increased the risk for any of the VCP to engage with SHFs. Subsequently reducing the exposure to risk for VCPs is likely to create a more interesting environment for them to working with SHFs. Policy therefore should focus

Within the current legal framework of the Credit Act, the rulings for insurance pay-outs by the Financial Services Board (FSB), and FICA, the financial industries, banks and insurances are limited to serve larger commercial farms and forced to ignore SHFs. Yet more important to the financial services as well as the traders and retailers were limitations related to cooperative

on yields, net returns and household incomes.

Table 2. Limitations inhibiting both SHFs and VCPs.

Limitations experienced by both SHFs and VCPs

Education (%)

Logistics (%)

Banks [4] 87.5 50.0 100.0 90.0 95.0 50.0 88.3 90.0 Insurers [3] 80.0 33.3 86.7 80.0 53.3 66.7 71.1 80.0 Traders [2] 90.0 0.0 90.0 70.0 60.0 n.a. 80.0 100.0 Retailers [3] 66.7 33.3 73.3 100.0 93.3 n.a. 88.9 90.0 TOTAL 81.0 29.2 87.5 85.0 75.4 58.3 82.1 90.0

Compliance (%)

FICA, credit act & FSB (%) Access to market (%) Cooperative leadership (%)

Land ownership (%)

most important limitations that need solutions.

tional economic system favoring SHFs is high.

on risk reducing concepts and limitations as prioritized in Table 2.

4.2. Policy debate

SHFs Funding (%)

172 Agricultural Value Chain

In agreement (stdev)

> We have challenged the notion whether South Africa's current food system has the ability to sustain long-term food security, in which the existing food complex dictates the flow of economies and favors large industrialized agriculture, while marginalizing small and microfood producers. We furthermore argue that other African countries, in a development drive to modernize food value chains, should not exclude SHFs from benefitting as well, as there is a lot of food security potential residing with SHFs. Yet, as our interview results have shown,

there are a host of systemic challenges resulting in a broad-based resistance from multiple industries, particularly within the SA value chain to engage with SHFs.

Author details

References

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Wolfgang Johann von Loeper<sup>1</sup>

\*Address all correspondence to: wolfgang@mysmart.farm

\*, Scott Drimie<sup>1</sup> and James Blignaut1,2

The Struggles of Smallholder Farmers: A Cause of Modern Agricultural Value Chains in South Africa

http://dx.doi.org/10.5772/intechopen.75710

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1 School of Public Leadership, Stellenbosch University, Stellenbosch, South Africa

2 South African Environmental Observation Network, Pretoria, South Africa

Being unable to take part in these value chains, ranging from missing access to input products, micro-loans, micro-insurance, education and market, means an exclusion from revenue potential resulting in a general struggle for economic survival. Nevertheless, as we have argued in our literature review, there is a residing entrepreneurial nature within South Africa's SHF that offers a great potential that could be leveraged.

On the other hand, we have risk averse VCPs avoiding SHF because of high perceived risk or failures made through own experience. Nonetheless, most VCPs remain very interested to increase engagement with SHF in future, if a new system reduced the risk. We have shown how government could reduce the most important risks and limitations, which in order of importance are: cooperative leadership (90%), education (88%), logistics (85%), access to market (82%), funding (81%), and food safety compliance (75%); all of which were perceived by the interviewees as more important than legislation, regulatory requirements and land ownership.

As economic viability is more important than land ownership, which is not a guarantee for proper land custodianship and profitability, government should rather focus funding and the establishment of cooperative leadership in conjunction with existing commercial farmers that assists with access to markets, logistics, plus education through field extension on how to practice low external input farming methods that reduce risk and the need for credit and imported input products, while increasing food resilience in rural areas and economic viability of SHF.
