Agribusiness And The Small-scale Farmer

A Dynamic Partnership For Development

Simon Williams, Ruth Karen

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429717864
• Edition: 1
• Topic: Business
• Subtopic: Small Business
• Index: Business

Based on case histories from nine Third World countries, this study examines the successful cooperation between private agribusiness firms and small farmers to increase agricultural production and income in developing countries. In such ventures, small farmers are organized around a core private company that buys their output and provides manageria

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Agribusiness and the Small-Scale Farmer: A Dynamic Partnership for Development

Simon Williams

Theme and Tone

This book tells a story of a truly remarkable achievement, a global drama about the conception, establishment, and impact of thousands of agribusiness enterprises scattered to the far ends of Africa, Asia, and Latin America and of the changes wrought by these ventures on the lives and hopes of literally millions of people: small-scale farmers, farm families, and the traditional, disadvantaged societies of which they are a part.

People reflecting the myriad cultures of the world have mixed freely to participate in highly productive systems where before both the land and the creative use of human intelligence languished. Quite amazingly, as it grew and proliferated agribusiness found a fit in practically every social structure, every stage of human development, and every political ideology characterizing the Third World, and where the industry has prospered, the people involved have begun to prosper.

These thoughts and feelings are not meant to paint a picture of Utopia, with agribusiness as its capital. No one has yet invented the perfect process of achieving the highest levels of human happiness and serenity. Vet in this troubled world, the challenge is clear and pressing that there can be no let-up in the search for a better place in which all people can live in harmony, in freedom, with hope. This book suggests that the worldwide growth of international and national investment in agribusiness, the impact of these ventures on the supply of food and fiber, and the power generated by individual enterprises to bring traditional but deprived rural people into the process of modernization have to constitute one of the major accomplishments of the twentieth century. This needs to be widely recognized. The strengths and weaknesses of the experience should be carefully evaluated. The instrumentality of agribusiness as a major force for benign agricultural and rural development should be grasped and put into its proper place for the commonweal.

At this point the question arises: What is the fundamental nature of agribusiness that makes it a vitally important tool for development? The answer may be found in three characteristics of the operation and impact of an enterprise in a traditional rural setting.

Agribusiness as a Primary Agent of Change

Whenever and wherever agribusiness becomes a presence in a rural area and manages to prosper, it becomes a compelling force for change. This force is exerted, as a general rule, on relatively large numbers of people simultaneously, at and around the enterprise site; along the food and fiber chain from production to consumption; and at the centers of governmental power. Once public policy has opened the doorways to action, it is at the project site that the most intriguing response to change becomes manifest.

Initially, rural people respond quickly to the economic motivations held out--getting a job and a wage or increasing net cash income on the farm. To participate means accepting a wide variety of changes in behavior and attitude, doing so quickly and in a competitive framework of opportunity. Novel tasks are taken on and new skills acquired, on the job and by means of formal training. New ideas and relationships are introduced. Technical supervision may supersede personal choice on the farm. The importance of quality control; the significance of personal responsibility on the job or on the farm to enterprise success; and recognition of nontraditional lines of authority: these and other abstractions begin to foment in the mind. Upward mobility for men and women becomes a real possibility. New, higher levels of income lift the vision of life from subsistence to more vivacious alternatives for parents and children, visions that may be further brightened by the early impact of corporate public services such as improved housing and schooling, health clinics, and recreational facilities.

Granted, the rapid changes occasioned by agribusiness often generate conflict and some disorder. Rurally sited ventures, especially when they pioneer in a remote area, are prone to breed stresses and strains in family life and in social order when neither time nor talent is allocated to prepare people for abrupt shifts in life-style. New high levels of cash flow in rural communities inevitably attract carpetbaggers and scalawags who prey upon ignorance and awakened expectations. Investment incentives affecting taxes, labor pay scales, land acquisition, management control, repatriation of profit, proprietary rights over technology, and a host of other concerns of investors and governments may one and all, at any moment, be the subject of political, personal, or ideological tension. More than anything else, the radical challenge to investors in the private sector lies in the validity of claims that on-farm increases in net income and increases in family income from wages are truly significant, particularly when compared with corporate profit and management salaries. There may be no argument about the value of doubling, trebling, or quadrupling income, but there is a dispute over the freedoms gained and the equity achieved when in absolute terms income per family remains very low.

But stress, strain, and adjustment are the ineluctable consequences of the process of change. Their existence at an agribusiness site is natural and predictable. This book takes the position that the industry has, in fact, set the stage not only for conflict resolution but also for a further rapid expansion of benefits for rural people and their governments. The signs of this are in evidence throughout the cases described in later chapters. For example, Pinar in Turkey and the Haggar Group in the Sudan (Chapters 5 and 6 respectively) are making company shares available to farmers; Pinar and Hindustan Lever Limited in India (Chapter 2) recognize that the income from small-scale dairy operations cannot adequately support a rural family and are helping to diversify farm output to include other cash crops; in Thailand, the Charoen Pokphand (Chapter 7) operation anticipates that entire villages, complete with houses and all the pig-raising facilities built by the company, will become owned and operated by the people settled originally in experimental villages.

What is of critical importance to intellectual balance in thinking about the potential contribution of agribusiness to rural development is to remember that whatever the shortcomings in the changes the industry brings about in a given period of time, each company galvanizes the rural people at the site into a new state of mind about change. What more needs to be done has an increasingly better chance to be done because both the company and the people have learned something about risking their futures on the dynamics of their interdependence. As anyone with field experience among traditional rural people will testify, receptivity to a break with past constraints on human development is a priceless asset. Achieving this end is usually a costly and time-consuming task. Agribusiness makes this start. Going forward from this point with sensitivity and grace is the true challenge. The limits of past performance only define the opportunity.

Agribusiness Transcends Differences

Agribusiness not only activates the process of change and helps create an environment basic to further development: The experience of the industry also provides conclusive evidence that the response of rural people is remarkably similar worldwide, despite the wide differences of culture, social order, and political form that separate them.

This universality of response is vividly illustrated by competitive companies within segments of agribusiness that span the world. Sugar is a good example.

Sugar is produced on all continents and flows into the marketplace from dozens of countries. Investors may represent public or private interests, separately or in joint venture; variations in the mix of owners and control of cane growing/sugar milling operations are almost endless. Management of the industry, like the capital invested, also derives from many different places. In effect, the personality of the sugar industry cannot be categorized simply by national origin or cultural viewpoint.

What homogenizes the industry is its technology. While there are, of course, differences in the practice of cane cultivation (rain-grown versus irrigated, hand-harvested versus mechanical harvesting, chemical weed control versus hand hoeing, among others), and in refining, the elements of essential similarity dominate. For this reason, it is valid to draw a significant conclusion from the fact that in training farmer-suppliers, plantation labor, or factory workers, wherever the operation is sited in the Third World, the results have been the same. More or less identical training systems are employed and work successfully. The time it takes to reach comparable skill levels is similar. The pride and pleasure taken by management in the performance of their enterprise is manifest wherever production persists. The same pride and pleasure of the local work force, as it moves into this new technical world, are also in evidence at a well-managed plant.

Indeed, if the world were examined only through the lens of sugar enterprises in less-developed countries, people would certainly seem far more the same than different. No matter the language, the clothing, the food eaten, the social order, the traditions of farming and marketing, or the quality of life in general, when the sugar scheme enters the scene, what people do, how they learn, how they change, all fit a common pattern.

What can be said about the sugar industry also applies to the production of grains, vegetables, coffee, tea, tobacco, tree crops, fruits, forest products from tannin to timber, cotton and other natural fibers, and animal products. To some degree, but not as conspicuously, there are similar responses to agribusinesses that interact less directly and continuously with rural people, for instance, manufacturers and marketers of animal feeds, animal health products, fertilizers and other agricultural chemicals, improved seed, and agricultural machinery.

From the viewpoint of this book, the ability of agribusiness investors to transcend differences has three important implications.

1. Most obviously, this ability has led to ventures everywhere; agribusiness dots the earth to its farthest reaches. Thus, a program of agricultural and rural development rooted to agribusiness starts by being truly global.
2. Because both the nature of the changes introduced by agribusiness and the response of rural people tend to be shared throughout agribusiness, the design of a global policy and its method of implementation is to a considerable extent simplified.
3. The opportunity to promote agricultural and rural development worldwide, put forward by agribusiness, is seemingly independent of the product line and other particularities of each commercial enterprise. Therefore, when thinking of agribusiness as contributing a force for rural development, the industry can best be thought of as a homogeneous entity, rather than as a large, complex group of discrete, competitive, and very diverse enterprises. Integrating the function of long-range rural development within each company need not be threatening to corporate privacy. What is to be capitalized is the attitude toward change already generated and the assets flowing outward from the enterprise into the community at large: money, active intelligence, new and varied skills, self-respect, and other benefits of equal importance.

Agribusiness Takes the Risk and Intends to Stay

In addition to its power to induce change and to find a fit throughout a heterogeneous world, agribusiness helps accelerate rural development in many other ways. Four examples are singularly illustrative.

The company takes the first, large financial risk. In the start-up phase management must do what any rural developer must do to induce response from local people whatever their role is to be, contract farmers or labor. Of a consequence, the industry has added literally billions of dollars to the global development budget.

Not only is this investment important because of its sheer magnitude; from a development perspective it is equally significant for other reasons. Agribusiness often risks capital where public development funds would not venture (see the Hindustan Lever case in India, Chapter 2; the Mumias Sugar Company case in Kenya, Chapter 3; and the Commonwealth Development Corporation case in Swaziland, Chapter 4), although at times the situation is reversed (see the Agro Inversiones case in the Dominican Republic, Chapter 10). Agribusiness, when it enters into remote areas with few social amenities, is able to attract talented professional people to the job as residents with incentives beyond the capability of most public agencies. Equally important, companies can and do provide income incentives to farmers and workers that encourage participation in the enterprise. These early costs can be very high and may have to be carried for some years; calculating these costs and their economic justification is a normal part of corporate feasibility projections. These realities often confound the design of publicly financed projects. To this last point should be added that investors in agribusiness, dealing as they do with renewable raw material resources, and following strategies based on an expanding market, actual and potential (as all the cases in the following chapters illustrate), start with a policy that focuses on longevity. This long-range view of growth and profitability allows for flexibility in amortizing start-up costs. As an official from the Commonwealth Development Corporation put it, the company's investments are characterized by "patient money," a resource often denied to public officials.

In sum, once an agribusiness is in full operation, it has financed the toughest, most sensitive, costliest, and riskiest stages of the process of rural development. Although the job is never finished, building upon the early changes to the next broadly conceived, long-range stages of rural development is a creative and prudent utilization of resources.

The company provides an on-site, disciplined management organization. This in itself tends to correct a basic weakness in too many public development programs. Accountability for performance and the use of money is facilitated. The burden of excessive overhead costs attendant to the intervention of bureaucratic personnel located in urban centers far from a project site is sharply reduced. The daily presence of professional staff among their constituency, a critical factor governing success, is ensured. Finally, because the company intends to operate long term, the design of the ongoing rural development program is planned with the necessary continuity in mind. A glaring flaw in development assistance financing has been the short time span of its commitment.

The company can mediate conflictive issues. This is true especially if it is located in a remote area where no other authoritative, competent intermediary exists to mediate between local people and their government, or between divergent groups within the community. As already noted, agribusiness is a primary force for change at an enterprise site, and change is inherently a never-ending process of conflict generation and conflict resolution. Further, the changes set in motion are not, and cannot be, confined to the site. The ripple effect of the entry of agro-industry into a traditional area can circle out for great distances. The universal mosaic of law, agrarian reform, paternalism, finance, investment incentives, internal and external marketing systems, among so many other facets of local, regional, national, and international interaction, is touched at a thousand and one places, each sensitive, each colored by its contact with another.

Generally, the elements of self-interest in this complex structure of interaction are inclined to interfere with one another. Harmonizing these conflicting interests requires both sophisticated understanding and a position of authority as a respected participant in negotiations. Rural people rarely have the knowledge or the power to present their views. Agribusiness management usually has both. This appreciation is particularly relevant as the distance of an enterprise from the centers of public administration grows, and the interdependence of rural people and management becomes closer and more intimate.

The evidence for the growth of management discussions with governments, on behalf of rural people, can be found in some of the cases described in this book. The issues range from gaining access to credit and imported inputs required for new high-yielding farming practices; to prices paid for raw material contracted from farmers; to improvements in local infrastructure; to the establishment of farmer organizations charged to work out solutions to a wide variety of technical and social problems with declining dependency on either company or government.

The company provides a cash flow. This provides a base for a program of economic diversification--often a planned goal of rural development programs that is never reached because of the lack of a first major generator (investor) of cash.

From the moment preoperational construction begins, large cash flows emanate from the enterprise, always with major impact. If there has been no preparation for the use of this money, it may corrupt, disrupt, and otherwise be largely wasted. Preparation or not, prudent personal use or not, the money and the permanence of its source creates a dynamic, immediate opportunity to diversify the area economy in significant ways. More people can share in the benefits of development: more income to diffuse, more variation in job requirements and necessary skills, decreased dependency on the company, increased self-sufficiency and freedom from public support, among many others. The reality of this opportunity is overwhelmingly evident wherever agribusiness has entered the scene and has prospered. The question is: Who, most logically, can and should take responsibility to ensure that the wealth of opportunity created is not lost?

Ongoing agribusiness has built its bridges to the local people. Its interdependence with these people is a matter of self-interest to protect and nurture. It can negotiate with the outside world: the government, banks, markets, and sources of knowledge and expertise, for example. It provides a management system, with a concern for performance. It has the capacity to "see" investment...