Rural Population Helped by ‘Partnerships’ in Processing Industry?
Esra Galun
Keywords:  Small-scale farming; Employment/Income; Developing countries (general); Food processing.
Correct citation: Galun, E. (1996), "Rural Population Helped by 'Partnerships' in Processing Industry?" Biotechnology and Development Monitor, No. 28, p. 24.

Crop improvement is the dominant strategy to improve the living conditions of small-scale farmers. This strategy is unlikely to succeed on its own, since the main added value is realized in the processing of agricultural products, not in their production. Therefore, Esra Galun expresses the idea that farmers should achieve partnerships with the industry that process their products.

In recent years, I have participated several times in meetings addressing the improvement of the standard of living in rural areas of developing countries by plant biotechnology. Unfortunately, it repeatedly became evident that there was either a misunderstanding or a lack of real good will by the participants of these meetings. They mainly concentrated on crop improvement, and less on the comprehensive picture of how to elevate the standard of living.
Will crop improvement really result in a substantial increase of the standard of living of small-scale farmers in developing countries? Let us be optimistic and assume that a 30 per cent yield increase in rice production is feasible in the next 5 years. A Philippine rice farming family that handles half an hectare may yield 4 tonnes of rice each year when it successfully realizes two crops annually. At a market price of US$ 350 per tonne, its total annual income will be US$ 1400, or a profit of US$ 1000 per year after deducing expenses.
In 5 years, when crop production increases hopefully without raising production costs, the family will have at best US$ 1400. However, this is most probably a gross over-estimate since rice yields are likely to increase elsewhere as well. "Elsewhere" could be at a farm in Texas, USA, where a farmer can operate 500 hectares. When yields also increase in Texas, the world market price will decrease. This reduction in rice prices will erase the benefit of higher yields in the Philippines.

The case of rice is very similar to several other commodities and cash crops. The small-scale farmer in developing countries will stay poor (at best, a little less poor) unless a more holistic change takes place. The common attitude that their future should be confined to the production of low-price commodities and self-sustainment appears unacceptable to me. Therefore, several interconnected issues should be dealt with simultaneously:

The income of the rural population can only increase if the processing of agricultural products is performed in the rural areas by farmers who are not only be employed but who also gain an increasing share of the ownership of the processing industry. Ownership in processing is the most transparent way to secure farmers a share in the value added to their products. The added value of processing agricultural products is several times higher than the value of producing them. Extreme cases are cornflakes and chocolates, of which the cost of respectively corn and cocoa beans constitutes less than 10 per cent of the final marketing price. Even in frozen vegetables, ready made meals, potato chips and packed meat products the real profit is made in processing.
The possibility of farmers becoming owners of processing industry is not utopian. Many years ago, dairy farmers in Switzerland initiated cheese cooperatives that own the cheese factories. Obviously, selling high-value Swiss cheese is more profitable then selling milk. More recently, Columbian coffee growers have started to organize themselves in order to regulate production, centralize marketing, and produce processed coffee products such as instant coffee.

The stimulation of similar developments in developing countries should be adapted to the specific rural population, its agricultural conditions and the crops concerned. In the first stage, well-established international food processing companies should be attracted, for example, by providing free land to establish their factory in the rural areas, tax benefits or secured low salaries. In return, these companies should be willing to give their employees a partnership, starting from a symbolic percentage of shares to a maximum of about 50 per cent after 25 years.
Meanwhile, these companies should invest in human resources in the region, in order to provide people with the education and training they need gradually to take over the leading positions in the local industries. Once such industrialization starts (possibly with international financial support) it may trigger the initiation of additional industries that are not based on such partnerships, possibly not even based only on local agricultural products.

If there is a real will to elevate the standard of living in poor rural areas substantially, it is worth taking this idea seriously, notwithstanding the fact that it may not be feasible in many areas, and may not produce short-term results. Is there an international agency or any other public or private entity willing to help take this idea beyond this "Opinion" page?

Esra Galun is professor emeritus at the Department of Plant Genetics of the Weizmann Institute of Science, Rehovot, Israel.

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