By Emmanuel Hidier and Gilles Mettetal
Agricultural producers all over the world face two massive challenges: to raise production and increase farm yields to meet a growing demand while respecting the environment, and improve food safety and quality standards to satisfy more sophisticated consumers’ expectations.
However, producing more by simply expanding existing means and ways of producing will come at a price. Climate change and natural disasters such as droughts or the recent floods in parts of the Balkans are warning signals. Not everything that is possible is actually desirable and can have grave consequences which outweigh the benefits.
In the last 5 years, farmers and agribusinesses in Eastern Europe and Central Asia (ECA) have successfully adapted better methods of production to meet domestic demand for food. Technological progress, more sophisticated equipment and increasingly efficient techniques of cultivation made productivity gains realistic. This opened up new trade opportunities; export countries like Kazakhstan, Russia and Ukraine now contribute 20% to all globally traded grains.
However, further investments are needed for yields to become more reliable, for the agriculture sector to become more sustainable and “greener” and for the food industry at large to unleash its potential. Countries in the region have strong potential. However, the most attractive export market, the European Union, also has the highest food safety and quality standards that most producers and processors struggle to meet. For the sector to fully benefit from trade integration, the public and private sectors must work together to create incentives to upgrade the value chain.
At the same time consumers’ preferences in Europe are changing quickly mainly due to rising incomes, urbanisation and the growing availability of better quality food. A recent Pan-European Survey of Consumer Attitudes to Food, Nutrition and Health revealed that the top five influences on consumers’ food choice in the EU are “quality/freshness” (74%), “price” (43%), “taste” (38%), “trying to eat healthy” (32%) and “what my family wants to eat” (29%).
Consumers’ appetite for high-quality food is good news for producers as they are rewarded with higher proceeds; and for the environment because producing better food means doing so in accordance with higher and ecologically sustainable standards.
Better production standards also mean respecting animal welfare. Shifting dietary patterns across the world include an increased demand for proteins, reflected in growing meat and dairy consumption. While this is positive for livestock farmers’ income, it also means extreme pressure on the livestock system. For example beef (red meat) has one of the longest value chains and hence questions like traceability, meat safety and certification are rapidly becoming issues of the highest importance to guarantee human health.
Companies which have been able to improve production standards and product quality have benefitted. At the same time the pressure is particularly high on small producers whose competitiveness is often negatively affected by the limited scale of their operations or inadequate experience and capacity. The EastAgri network, which is holding its 2014 Annual Meeting in Belgrade tomorrow, brings together large and small agribusiness companies and facilitates the exchange of experiences and know-how.
One obvious path to increase the competitiveness of local producers is specialisation through the development of niche products. The EBRD and FAO are working together on supporting such alternatives through building strong, origin-based and marketable brands (“geographical indications”). As a result, producers now have the opportunity to reach international markets with local products of the best quality.
Our experience also shows that investments in food retail, the back-end of the food value chain, can maximise sector upgrade through backward linkages with product suppliers and forward linkages with consumers. This exerts a multiplier effect on several segments of the value chain. It fosters the growth of small agribusinesses, including food processors, wholesalers, suppliers, manufacturers, and distribution and logistics. For this reason, the retail sector can “break new grounds” in implementing best policies and practices.
Sustainable production also includes reducing waste. According to FAO estimates, one-third of food is wasted or lost throughout the supply chain – this means 1.3 billion tons per year. Vast amounts of increasingly scarce natural resources are overused and greenhouse gases are released to produce agricultural products that are lost between the farm and the end consumer; and much of the food that reaches the consumer is thrown away, resulting in economic loses of over $750 billion per year.
This demonstrates how food security and producing quality and using natural resources in a sustainable way go hand in hand. Producing “better” requires investment in technology and capital, but also in human capital and partnerships of all players, from farmers to retailers and retailers to governments.
Over the next years the core fundamentals of the global demand for food offer a positive trendline for the food and agriculture industries in ECA. For this potential to become reality the right mix of economic and trade policies, coupled with a regulatory framework that creates the right incentives for both private sector and public sector investments, need to be strengthened. The development community can help forge these alliances.
Emmanuel Hidier is Senior Economist of the Food and Agriculture Organization of the United Nations (FAO) and Gilles Mettetal is Director for Agribusiness at the European Bank for Reconstruction and Development (EBRD).