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– a view from the private sector
It takes a giant step for smallholder farmers to shift from traditional farming practices to applying the knowledge-based principles of Good Agricultural Practice (GAP) in farming. The adoption of GAP can only be achieved through long-term intensive training, capacity building and through giving farmers a strong incentive to learn and to conform to the guidelines of GAP. The experience of Swift Company in Thailand has shown that farmers can learn and implement GlobalGap2 and organic farming with appropriate training and if higher prices for their farm produce can be guaranteed. A project implemented by the Swift Company in Srakaew Province, Thailand, demonstrated that farmers were willing to learn and to grow organic asparagus under contract, even when they had no experience either in organic farming or in asparagus production. The technical success and streams of high income realized by two small core groups of farmers led to the rapid expansion of organic asparagus farming. Swift Company has determined that streams of high and steady income are a key success factor in sustaining the application of GlobalGap and/or organic farming practices by its contracted grower groups in Thailand.
Chairman, SWIFT Company, Thailand. GLOBALGAP is a private sector body that sets voluntary standards for the certification of production processes of agricultural and aquacultural products around the world. The organization’s GLOBALGAP standard is primarily designed to reassure consumers about how food is produced on the farm by minimizing detrimental environmental impacts of farming operations, reducing the use of chemical inputs and ensuring a responsible approach to worker health and safety as well as animal welfare.
Long-term and intensive training and capacity building programmes are the key requirements for helping smallholder farmers to understand the principles of knowledge-based farming and to put these into practice. Training programmes must be broadly based. In addition to addressing technical issues such as pre-harvest practices, farm maintenance, harvest and post-harvest techniques, they must address appropriate management training on administration, financial management, including bookkeeping, and the guidelines of the group’s charter. Training must promote a change in attitude and must be conducted on a frequent basis over the long term. The training programmes of the Swift Company are divided into four parts: 1. 2. 3. 4. Guidelines and principles of selected practices Farm production techniques and farm hygiene Administration and management of the group Attitude development.
A majority of smallholder farmers in developing countries are caught up in a poverty cycle whereby they must live at the subsistence level without the required resources to improve their farms. A number of major constraints, identified below, prevent them from escaping this cycle. 1. There is a lack of direct access to markets by smallholder farmers which results in their continued dependence on the services of middlemen and traders. 2. The presence of inefficient multi-tier chains wherein farm produce repeatedly changes hands with incremental expenses and profit taking whenever farm produce changes hands. Under normal circumstances, the produce must still be competitively priced in the market and middlemen/traders cannot freely add profit margins. In order to maintain or increase their margins they therefore reduce buying prices at the farm whenever and wherever possible. 3. Wholesales markets in Thailand and in many Asian countries are “spot markets” (price reflects spot demand and supply) wherein spot prices fluctuate greatly and frequently. Middlemen/traders try to limit their exposure to risk by buying at the lowest possible price. 4. Poor logistics and poor handling in the supply chain from farm to market causes severe damage to fresh farm produce resulting in considerable wastage. These losses are transferred to growers, resulting in lower prices at the farm gate. 5. Market mechanisms often work against small growers even if they are organized into groups or cooperatives. Fresh produce supplies are delivered on a daily basis to wholesalers by “regular suppliers” who are capable of organizing supplies from different geographical sources to meet the daily demand of wholesalers on a year round basis. These relationships are generally built on trust and mutual benefit. It is very difficult for groups of growers or cooperatives to break into these supply webs, since they are not in a position to supply the range of cash crops required on daily basis. Smallholder farmers in developing countries must therefore always face the risks of farming alone. Their exposure to risk is significantly increased by extreme weather conditions. Frequent losses in farm production increase their debt burden, often to the point that they eventually lose their farm lands
and have to operate on leased land or become wage earners in the agricultural sector or serve as unskilled labour in the industrial and service sectors.
Farm income and productivity
Given the small farm size of most producers, any addition to their net incomes must be derived either from an increase in the value of farm output or from a reduction in farming costs or both. Small farmers must, therefore, be exposed to proven technologies and practices that are cognizant of local conditions and which improve net returns per unit of land. They will be in a position to invest in farm improvement geared toward increasing farm productivity only when they can realize high and steady flows of income over extended periods. Investments in technologies, practices and farm improvement will significantly increase productivity outputs in the long term. Organic farming practices can significantly reduce the farming cost of smallholder farmers in Thailand. Small farms are generally family managed. Conversion to organic farming does not necessitate the engagement of additional farm workers. By refraining from the use of relatively expensive inputs such as chemical fertilizers and other agrochemicals, the input costs of small farmers can be significantly reduced and labour cost can be maintained at the same level. In developed countries, where labour costs are generally much higher and average farm sizes are relatively larger, the cost of shifting from conventional, monocrop and mechanized farming to organic farming results in higher costs and/or declining productivity. Smallholder farmers can therefore, turn farm size constraints into advantages in terms of lower production cost, higher selling price per unit and increased opportunity to access markets, by shifting to organic farming practices. Extreme weather conditions caused by global warming increase farming risk and can greatly reduce farm productivity. The implications of climate change for food security are currently widely discussed at the policy level. Farmers and the agricultural sector have, in the interim, been left to face the risk and the impacts of extreme weather conditions with relatively little assistance from the public and private sectors or from international organizations. Smallholder farmers are the most vulnerable group in the sector. Their livelihoods are on the verge of being destroyed by frequent and severe losses in farm production caused by extreme weather conditions. Under current conditions, it is anticipated that average productivity of smallholder farmers in Thailand will decline. In order to maintain and, if possible, increase productivity, it will be necessary to modify current farming systems and farming techniques so as to minimize the impacts of extreme weather. These changes must begin with seed selection, land preparation, watering systems, planting techniques, harvesting and farm maintenance. A majority of smallholder farmers are not in a position to develop new farming approaches. Assistance from the private and public sectors and from international organizations is therefore urgently needed.
4. Enhancing GAP and productivity through innovative approaches
Under normal weather conditions, high and steady income flows can be realized by smallholder farmers if they can sell their produce at a fair price at harvest in any season of the year. Direct market access is one prerequisite for obtaining a better price. Minimizing logistics cost per unit is also necessary to increase their net income. A well designed contract farming model is one of the solutions for generating high income streams for smallholder farmers in developing countries. The Swift Company’s model was designed in 1989 and has been fine tuned to meet local conditions and specific requirements in different parts of Thailand. The principle objectives of the model are: • • to secure sufficient quantities of premium quality fresh produce that meets the highest standards of food safety directly from contracted farms on a daily basis; and to ensure that every party in the chain, from grower to consumer, benefits fairly from the operation in a win –win–win model.
The model was designed to remove all the aforementioned major constraints, faced by smallholder farmers.
The Swift Company model for GAP adoption with fair pricing
Following a comprehensive risk assessment of farm plots, smallholder farmers are organized into groups under the Company’s “contracted farming” model. Production planning at farms is laid out by the groups in collaboration with the Company to supply a predetermined daily volume of fresh farm produce. At least one collection station is set up in the group to collect harvested produce on a daily basis from contract growers. The collection station is set up in the farming area of the group as a mechanism for literally moving the physical market to within easy reach of the farmer. Critical mass to minimize logistics costs in moving fresh farm produce to the Company’s packing house is achieved through farm production planning and the setting up of collection stations. Members of the group have direct access to market and can sell all grades of their farm produce at guaranteed prices, agreed-upon prior to planting. Under the terms and conditions of the contract, if the market price, at any point in time, is higher than the guaranteed base price, the market price is applied. Produce is transparently weighed and graded by Company staff in the presence of growers. Fair pricing is determined by giving due consideration to the cost of farming, and retail price in any targeted market. Through a back calculation, average gross margins of retailer, importer and logistic costs incurred in moving produce from the Company’s packing house to the market are deducted from the retail price. In situations where the gross margin of farmers is lower than a predetermined level after the processing and overhead cost of the Company and local inland logistics cost have been taken into consideration, the produce will not be introduced to the market. In situations where the margin is acceptable and/or farm produce has good long-term potential in the market, the buying price at farm gate is set through an open discussion between the Company and members of the group. The price is guaranteed in writing in the contract and is open for revision on an annual basis by both parties. Financial constraints are removed through the Company’s well planned financial assistance programmes. These include long–term interest–free loans to the group rather than to individual
farmers. In situations where members have done their best in farm maintenance but face severe damage or suffer total losses in farm production because of uncontrollable factors, each individual farmer is provided with a grant, no strings attached, to finance a new round of his or her farming. Technological and market information constraints are removed through the provision of intensive training at no cost, and through monthly meetings and discussions among members of the Company. Swift Company’s model with built-in fair pricing has been working well. GlobalGap was introduced to contracted grower groups of smallholder farmers late in the year 2000. The practice was certified on Option 2, i.e. group certification, in early 2003. Currently, all members of the Company’s grower groups are practicing GlobalGap in their conventional farming operations. Chemical-free farming, based on GlobalGap practices was introduced in 2005 to all asparagus-contracted growers of the Company. Organic farming was introduced to new groups under the same contract farming model in 2001. Group members did not have experience in either organic farming or green asparagus production. Through intensive training and the commitment of two small core groups, the organic asparagus farms were certified in 2003. The success of the two groups, in term of streams of high income and good farm yield, led to rapid expansion in the area. The high and steady flows of income of the core groups made it relatively easy to convince new members to switch to organic farming practices.
Lessons from the Swift model for GAP adoption
A well designed contract farming model and its successful implementation is only one of the key success factors. Long-term sustainability of the model and of the practice cannot be achieved if produce from the small farms cannot be efficiently linked to markets at competitive prices. A comprehensive larger model is required to sustain the operation and the practices. A new value chain and a new approach in managing quality in the chain must be developed.
The Swift Company’s supply chain model
The traditional multi-tier supply chain model is currently the prevailing model for fresh produce in Thailand whereby fresh produce changes hands many times between the farm and major wholesale markets and consumers. Poor logistics, poor handling and lack of post-harvest management result in considerable wastage in the supply chain. Produce safety and quality is compromised. Value losses are pushed back to farmers and forward to consumers, resulting in a relatively very low price at the farm with consumers paying much more for poor quality produce that is unsafe. No one benefits from the prevailing supply chain. Everyone - including middlemen/traders, wholesalers, retailers, growers and consumers - loses. Swift Company has developed a new supply chain model by undertaking the daily delivery direct from smallholder farmers of the contracted groups, organized under the Company’s contract farming model. Post-harvest control and traceability systems can be applied immediately after harvest at each collection station. The daily harvest of each individual smallholder farmer is combined into a large enough volume that is consolidated and transported to the company’s packing house by refrigerated truck. Logistic costs are minimized through farm production planning and the establishment of
collection stations. Quality and food safety management and maintenance which start on the farm are maintained throughout the supply chain. Wastage in the chain is approaching zero as a result of improvements in quality management in the chain.
PREVAILING SUPPLY CHAIN
District/provincial wholesales market
Major wholesalers markets in cities
District/provincial wholesales market
Pack house/food factory/exporter
Retailer Pack house/food factory/exporter
Pack house/food factory/exporter
Importer / wholesaler
Importer / wholesaler
Importer / wholesaler
Swift Company is able to pay a much higher price for farm produce by managing waste and by eliminating tiers in the supply chain that incur additional expenses and traders’ profit. Incomes of contracted farmers are significantly increased not only from the higher price at the farm gate, but from either reduced farming cost or from better yields or both. The guaranteed buying price in the contract automatically transfers gains realized through cost reduction and/or improved yields to farmers. The contract farming model and development of the company’s supply chain clearly shows that higher prices at the farm do not always result in higher prices to consumers.
SWIFT ‘S SUPPLY CHAIN
PACK HOUSE 1
PACK HOUSE 2
PACK HOUSE 3
• DIRECT SUPPLY FROM FARMS TO PACK HOUSES. • MINIMIZING WASTE, LIMIT
Opera tions at the packi ng house include freezing, dehydration and semi-processing to ensure the full use of different grades of fresh produce. Currently, high quality, fresh, frozen and processed products that conform to food safety standards are delivered at competitive prices on a regular basis to high-end retail chains in domestic and many export markets such as the United States, Europe, Switzerland, Japan, Korea, Australia and New Zealand.
PACK HOUSE 4
Increasing productivity outputs through innovative farming approaches
Food security is a pressing issue given the limited farm land and the growing world population, which is expected to be nine billion in the year 2050. Increasing productivity outputs is one of the key responses to reducing shortages in world food supply if farm outputs can be efficiently linked to markets. Innovative farming approaches can play a significant role in increasing productivity outputs, as in the case of sugarcane farming under contract with the U-Thong Industry Factory and vegetable farming organized by Swift Company in Thailand.
Innovative sugarcane farming at the U-Thong Sugar Industry Factory in Thailand
The Company introduced a new sugarcane farming technique in 2009/2010 with targeted output of 100 metric tonnes per rai or 620 metric tonnes per hectare (6.2 rai = 1.0 ha). Sugarcane was planted in tight rows having 1 600 cane plants per row of 40 metres by 1 metre (one rai consists of 40 rows or there are 248 rows per ha). In preparing the farm land, 500 kg of composted bagasse was mixed with the soil. Fertilizers, based on composted bagasse, were applied on two occasions during the growing period; the first application was made at two months and the second at four-and–a-half months after planting. The sugarcane was watered for a period of 20 minutes every two days with the use of a mini-sprinkler system. A wooden frame was used to support the cane and prevent it from collapsing. Lower leaves of the cane were
removed within three to four months after planting. In April 2010, 85.06 metric tonnes were harvested against the target of 100 metric tonnes. The shortfall resulted from damage caused by a summer storm and late harvesting.
It is anticipated that the success of this innovative approach will revolutionize sugarcane farming in Thailand.
New approaches in vegetable and asparagus farming introduced in Thailand by Swift Company
A new approach in land and soil preparation, watering and plant protection to lessen the negative impacts of extreme weather conditions is being experimented with on pilot-farms in different provinces of Thailand. This approach seeks to maintain farm outputs during the rainy season at the same level as those of the peak season. Planting beds are elevated to 50 cm above ground level with adequate drainage on both sides. The beds are narrow in order to facilitate rapid drainage of excess rain water under conditions of heavy and continuous rainfall. Water retained by air pockets in the soil is rapidly drained within a short period of time after rain. On average, 20 cm of top soil is prepared so as to allow the optimal functioning of fibrous roots under all weather conditions. A new watering method designed to minimize water usage in the field was also introduced. This replaced overhead sprinklers and the asparagus plants and other vegetables are watered only when the moisture content of the soil is below a predetermined level. When necessary, the plants are roped to bamboo poles to protect them from damage by strong wind. It is suspected that, not only has the high temperature (around 40˚ C) during the dry season in Thailand this year been the cause of severe damage to the plants, but excessive UV radiation may also contribute to damage. Swift Company plans to conduct a study on the impacts of excessive UV radiation on asparagus plants and leaf vegetables and, if necessary, how to protect them. A scientific study has been put on hold at present because of resource limitations. Although the initial results have been quite encouraging, at least two to three years will be required in order to reach firm conclusions on the new approach. These innovations in production offer the potential to increase annual farm outputs by more than twofold even under extreme weather conditions.
Sustainability of GAP can be achieved only when smallholder farmers can realize high and steady streams of income from the implementation of these practices. Proven farming technologies that can increase productivity must be introduced to the farmers after taking local conditions into consideration. Training and capacity building must be made available to smallholders at minimum cost or no cost to them. Increased farm productivity and innovation in farming hold potential for increasing farm outputs for the world population in 2050. The demand—supply gap will, however, be narrowed if, and only if, farm products can be efficiently linked to markets at fair prices. Wastage in the supply chain, in processing and in consumption must be greatly reduced on a global basis.
6.1 International organizations and the public sector
• International organizations and the public sector should provide sufficient support to: - basic and applied research on innovative farming from seed development to post-harvest control and handling; - supporting private sector and particularly SMEs in developing and in applying innovative farming approaches; and - developing strong cooperation between the public and private sectors in agricultural development planning and implementation. The private sector should be treated as an equal partner rather than being perceived as a party that would exploit funding for its own benefit. Mutually beneficial cooperation that will generate sustainable socio-economic results in agricultural development projects can be established between the parties, given good planning and transparent implementation. Agricultural development planning and funding must bring a specific focus on sustainability. This can only be realized when farm products can be effectively linked to markets and can generate high and steady income for farmers. Wasteful funding that results in the collapse of project interventions following project termination must be stopped. Accountability systems must be established from project planning through implementation and to monitor sustainability of the project. A workable guideline with built-in incentives and which makes use of a “carrot and stick” approach should be designed by the public sector in order to stimulate private sector interest in contributing to agricultural development programmes.
• • •
6.2 Role of the private sector
• • The private sector must revise its normal business practice from its exclusive focus on shortterm gains or profits to looking at both short- and long-term gains. The private sector should broaden its perspective and act transparently as an “agent of change” in introducing and in transferring proven farming technologies that increase productivity to their suppliers.
The private sector must assist their suppliers in reducing wastage in supply chains. In order to improve productivity in smallholder farming, private enterprises must act responsibly and refrain from exploiting entities that do not have any bargaining power in commercial transactions. The private sector must advocate the application of good agricultural practices and environmental protection, thus balancing monetary gain or profit with responsible acts.