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2.4 Efficiently Organised Value Chains Can Reduce Post-Harvest Losses

There is some evidence that a lack of inter-linkage between the different steps of the post-harvest system contributes to post-harvest losses. Losses in storage, for instance, may become larger because of longer storage times because of a lack of timely processing or other sales. Unavailability of transport combined with lack of storage on farm level may result in produce exposed to the risk of outside drying longer than technically necessary. Efficiently organised value chains can reduce such post-harvest losses. This happens mainly through a better organisation of marketing and of exchange processes between the actors in the agricultural value chain.[1] Such governed marketing efforts can take quite different forms; for storable grains and oilseeds they may include inventory credit schemes and warehouse receipt systems.[2] Such schemes can facilitate the quick removal of the crop from the field and storage in safe and loss-minimising warehouses and silos.[3] Adequately governed marketing structures may also save farmers from the necessity to sell growing crops before harvest in order to secure cash-flow, thus providing a more reliable income source.[4] Accordingly, so-called value chain financing schemes that support organised value chains may contribute to reducing food losses.[5]

To summarise the main findings how to reduce farm-to-fork bottlenecks:

1. Increasing food supply is more than increasing agricultural production output. A significant amount of the food produced on the farm is lost or deteriorates afterwards. This happens on the farm, for instance while threshing, drying, or packaging the food, but to a significant extent after the produce has left the farm, for instance in later value chain steps of processing, transporting or trading the goods. In order to increase the security of food supply, all steps and processes between farm and consumer need to be understood and strengthened.

2. Public investment in rural road infrastructure is key. Road infrastructure forms the economic basis for practically all post-harvest activities because they are all related to transporting produce to markets or processors, or to preparing produce for these steps. Road infrastructure also influences the farmers' decision what crop to produce, or if to produce at all for the market (because markets might be physically unreachable). Thus, innovative approaches to how to finance rural road infrastructure (both construction and maintenance) need to be developed.

3. Reduction of post-harvest losses requires investments by different private actors. The above-listed investments of the private sector in processing, transport and trade can be facilitated by providing capital, i.e. investment and working capital loans, which is typically provided by banks. The clients in these sectors typically carry a different risk profile as compared to urban or non-agriculture related businesses. And banks face a similar challenge with clients in agricultural processing and trade as they face with crediting farmers, since the different actors in the value chain face the same or similar specific agricultural risks.[6] Thus, financial institutions need to assess and manage co-variant risks characteristic for agricultural finance, including the different value chain actors. We will explore this later. So-called value-chain financing schemes along organised value chains that govern several post-harvest steps can contribute to the financial sector by reducing postharvest losses.

  • [1] See Hodges et al. (2011).
  • [2] For a discussion of agricultural value chains and value chain finance, see Swinnen and Maertens (2013).
  • [3] See Hodges et al. (2011) and Coulter and Shepherd (1995).
  • [4] Market structures for primary produce are often characterized by monopsonistic or oligopsonistic structures, i.e. there is only a limited number of buyers in an area that buy the harvest from the farmers. This results in the relatively high bargaining power of these traders since farmers have little alternative. Organized trade structures with longterm obligations on both sides are in principle suitable to reduce such bargaining power since plights of farmers shall not be used for exercising pressure on them. De Schutter (2010) examines the subject of bargaining power in global food supply chains, its potential abuse by dominant buyer, and the relation to competition law.
  • [5] See Miller and Jones (2010) for a description of different approaches of value chain financing. See also Swinnen and Maertens (2013) in this volume.
  • [6] See Maurer (2013) for a discussion of risks involved in crediting farmers and the agricultural value chain.
 
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