Second External Rice Advisory Group (ERAG)

Services Delivery Growing agricultural labor shortages in several countries
Increased cost of labor causes a shift to production systems with greater level of mechanization
Increased need for investment in machinery (larger farmers)
Increased demand for all sorts of contracting mechanization services: ploughing, combine harvesters, spraying, water pumping, transportation
Increased mechanization will require increased investment which financial service providers will need to cater for, including innovative financing schemes (e.g. leasing, hire-purchase, financing of dealers)
Potential for the landless to employ themselves as contractors (with their machinery like power tiller, tractor)
Potential for delivery of recordkeeping, accounting and reporting services to farmers groups who run their own savings and loan schemes 4/11<br>

Marketing Traditional farm-to-retail chain has many steps; each link may in itself be “competitive” but the chain as a whole may be not as efficient as it could be
Farmers are well informed about the factors that affect the rice prices
But they usually cannot influence these factors, or the farm gate price
Prices are seasonal, determined by harvest time
Flexible financing arrangements which allow farmers to delay sale after harvest may help reduce price seasonality
Government procurement has no good track record
The desire for low retail prices and high farm gate prices means that there are many interventionist policies, especially in import/export but also in production subsidies, financing, maintenance of stocks, etc.
There is domestic and global demand for niche varieties (aromatic, colored, etc.) of rice and organically produced rice
Niche varieties (and organics) often require the establishment of a new supply and logistics chain, bypassing the traditional channels; these new chains may be more efficient 5/11<br>

Price Efficiency Domestically “The degree to which the price reflects all available information”
That information includes for example: supply, stocks, quality factors (e.g. moisture, variety), transport and other logistics cost, weather, (expected) government policies, available capital to flow into the chain, etc.
Each country has multiple policies and measures in place to stabilize consumer prices and pay remunerative prices to farmers
At national level most of these parameters are reasonably well known
This should result in reasonably good price efficiency resulting in relatively stable domestic prices
In several border areas of Asia, prices are determined by a neighboring country because of well-integrated cross-border markets (Terai in Nepal, India and Bangladesh, Cambodia and Myanmar border areas with Thailand) 6/11<br>

Price Efficiency Internationally A tiny portion, about 5%, of global rice production is traded internationally and this relatively small portion of demand and supply decides the international price
Few (5) exporting countries account for 85 percent of all exports. Many more countries are small importers
Several importing countries are some years self-sufficient
Great uncertainty about the level of stocks in the countries that participate in international trade, in particular China.
The AMIS initiative is trying to make better data available but so far the results have not produced much better stock statistics
Relative uncertainty exists in international markets as regards
stocks in private sector and government
as regards what governments will do in case of shortages or surpluses
Uncertainty and poor quality of information means less price efficiency and greater price volatility 7/11<br>

Coops & Farmers Organizations The cooperative theory, of self-organization, economies of scale and preventing exploitation is clear….
but the performance of cooperatives has been rather mixed, both between countries and within countries;
Difficult to identify common factors for success and failure but “quality of leadership” may be the main common factor that decides success or failure
Government policies leading to excessive subsidies and government support, intervention and political interference play a negative role; distraction from the economic objective; such coops may be started for the wrong reasons
Why is the success rate so poor compared to e.g. European cooperatives? In certain European countries, certain sectors have earned a near monopoly?
Denmark doesn’t even have a cooperative law
Netherlands, just 11 paragraphs in the civil law
No cooperative departments etc.
Never much government support, but great results: Something to think about 8/11<br>

Coops & Farmers Organizations (2) Government interference and abuses in the past have caused that the word “cooperative” has different connotations in different countries
Coops often loose sight of the primary purpose which is economic
To escape from this, India now has “Primary Producer Companies” (PPC), a hybrid between a coop and a company
But PPCs suffer from lack of capital because they don’t qualify for all the financing facilities of state banks and NABARD
Some promising initial results have been achieved with outsourcing of recordkeeping, accounting and reporting functions for savings and loans of Producer Groups and Group Revolving Funds, Savings & Loan Groups, (Cambodia) 9/11<br>

Recommendations for consideration Improve extension services to farmers and make them also available to farm-supply storekeepers
Governments to ensure availability of sufficient quantities of fresh rice seed (varieties?) or get out of the business
Governments should agree to provide better statistics on private and public stocks and exporting countries should adopt more predictable policies to promote transparency in the international market, improve price efficiency and reduce volatility; collaborate through AMIS
Financial regulators should encourage rural financial institutions to establish innovative financial products for farmers, suppliers, machinery dealers to finance not only inputs (for short term) but also machinery, equipment for long term
Farmer production groups, savings/loan groups can be strengthened by outsourcing recordkeeping, accounting, reporting to professional external service providers
Enable landless people to lease, or hire purchase, machinery to operate as contractors for farmers. 10/11<br>

11/11 Thank You

ralph.houtman@fao.org<br>