Features

Connectivity in the food supply chain

27 July 2011
ITC News

 

Connectivity within supply chains is not easy to achieve, especially as competitiveness in developing and least developed countries may be weak. This constraint also affects food chains in these countries. Farmers face many challenges in improving their competitiveness and developing mutually beneficial linkages to buyers in food chains. Understanding the requirements of all players and taking a longer term approach to creating and nurturing strong partnerships can provide the key to unlocking these challenges.

What prevents food producers, especially small farmers, from selling their products to large consumers, such as hotels, restaurants and caterers? Why are these large consumers not interested in buying from small farmers if doing so helps their regions become more productive and competitive?

For large consumers the reasons for not considering small suppliers are multiple: they range from a lack of standard quality, to the limited range of products, to unreliable delivery and unexpected price variations. 

On the side of small farmers the issues can include failure to honour agreements to pay fair and agreed prices, higher than expected delivery costs and unrealistic terms of payment given a farmer’s situation. 

 

The importance of commitment and how it can be achieved

Developing better connections between suppliers and buyers can be achieved by strengthening supplier commitment. Stronger commitment could improve trading conditions and the level of transactions betweenlocal suppliers and consumers. Import levels would significantly decrease, which would result in important benefits for the regions where such initiatives are developed. However, attaining commitment between partners does not solve some of the basic problems, such as inadequate infrastructure, environmental requirements and economic and safety conditions.

What needs to be improved to construct a competitive supply chain? Most importantly all actors involved in the process need to implement medium- and long-term strategies. For example, a big hotel chain cannot afford to change their fruit and vegetable supplier every two months. For the buyer, apart from an increase in administrative costs, such situations present additional costs associated with the introduction of new products and new delivery processes, and can be perceived as a lack of loyalty from the supplier’s side. Additionally, price increases do not necessarily reflect market realities.

 

Supplier development programmes

Large buyers should focus on strategies for long-term supply including a supplier- development component. This involves certain risks that make success problematic because such projects can last between three and five years, and buyers normally have only short-term strategies. Thus a strategic change will require a mindset change that encompasses efforts at supplier development on a long-term basis that can take into account market conditions as they evolve. However, the benefits obtained from the successful execution of the project can deliver constant and high-quality products to the enterprise, contributing to its competitiveness.

An assured supply of products at competitive prices and meeting relevant quality standards is among the advantages that companies can obtain from a supplier development programme. The underlying partnership relationship is strengthened by the demonstration of a high level of loyalty from the supplier’s side, addressing operational problems and giving priority to innovating and creating new market opportunities.

On their side, small suppliers need to change their traditional trade patterns. What is required from them is a commitment to their buyers, paying special attention to terms of delivery, quality standards and conformity to previously agreed prices. Small farmers are often unable to resist the temptation to agree to more advantageous offers from other buyers, but formalizing terms through contract negotiation and proper documentation can provide a stable and predictable trading relationship between suppliers and buyers.

 

Joining an association – the benefits

Another shortcoming of small farmers, especially in developing and least developed countries, is their unwillingness to form associations. Associations can provide economies of scale, thereby increasing competitiveness and lowering overall costs, including for transportation. Individuals attempting to go it alone are also often unable to access the assistance available from logistics centres operated by farmers associations, and training and technical assistance and grants financed by small farmers’ guilds. Joining an association can offset these handicaps.

Finally, the role of governments is to facilitate the development of connectivity initiatives between the different food supply chains. Local, regional and national governments should take part as facilitators to help unlock the value in these chains. Government programmes that promote participation and cooperation between large buyers and small suppliers and optimize the links between the food chains in which they operate are necessary.

Despite the inherent challenges, high levels of competitiveness can be reached in food supply chains in least developed countries. With proper funding supported by donor and recipient coordination, beneficial results can be achieved through long-term approaches built on the strength of cooperative partnerships and economies of scale.   

ITC IN ACTION : Improving supply chain connectivity in Jamaica and Samoa 

Since 2010, ITC, through the All ACP Agricultural Commodities Programme (AAACP), has been supporting local governments in Jamaica and Samoa, among other countries in the African, Caribbean and Pacific regions, to develop and implement strategies that enable the connectivity of the main actors in food supply chains. Specifically, the programme actively links small farmers to the hotel and tourism sectors, better known as HORECA (hotels, restaurants and catering companies).   

In the case of Jamaica, ITC is conducting feasibility and implementation studies for the creation of agro-business centres. In addition to facilitating and optimizing fruit and vegetable logistics in various key areas of the island, these centres will also provide technical and commercial support to farmers who are part of the project through cost-efficiencies achieved through consolidated logistics (see diagram).