The new context of globalization and market liberalization offers new opportunities, but also new challenges to farmers. It requires more competitiveness and efficiency. It requires small-scale producers to ensure quality, consistency and standards of security if they wish to benefit from new markets. The comparative advantages derived from abundant natural resources need to be complemented with advantages arising from a stronger entrepreneurial role and links with the stages of processing. New approaches to farming should be promoted, including all kinds of linkages in the chains from production to consumption.
Many questions arise as to where one should lay the foundations for formulating a strategy and programme on development, such as:
How much can we strengthen linkages between farmers, agribusiness firms and agents?
How much entrepreneurial negotiation capacity can we build among farmers and agribusiness firms and agents, and what abilities and training are required?
What are the roles of government, non-governmental organizations (NGOs) and private agents in building alliances with this goal in mind?
What are the characteristics of alliances and associations in successful cases in this respect?
Does the rural and agro-industrial sector have development policies that help to consolidate these linkages?
Have these linkages had a positive impact on the living standards of small producers?
In order to answer these questions, the current project was carried out. It analysed different experiences in seven countries: Argentina, Chile, Colombia, Costa Rica, Ecuador, El Salvador and Guatemala.
The objectives of this paper are:
identify the main trends in socio-economic development and regulatory policies aimed at increasing agribusiness linkages between producers and processors;
identify two case studies of agribusiness linkages and key factors that are related in economic, social and institutional terms;
identify the main limitations on and opportunities for building favourable agribusiness linkages to rural development.
Argentina, Chile, Colombia, Costa Rica, Ecuador, El Salvador and Guatemala were selected on the basis of the following criteria:
selection criteria of the cases.
Representativeness of different degrees of socio-economic development
Latin American countries are grouped in different blocs by level of socio-economic development and commercial orientation. One bloc is the Southern Cone, consisting of Argentina, Brazil, Paraguay, Uruguay, and, more independently, Chile. These countries are characterized by a higher level of industrialization and trade. Argentina and Chile were chosen as being representative of this bloc.
The Andean Bloc, formed by Bolivia, Colombia, Ecuador, Peru and Venezuela, has a greater proportion of the rural population in the south of the continent. The agriculture sector is an important source of currency for these countries, although there is a stronger orientation towards mining in Peru and Venezuela. Colombia and Ecuador were chosen as being representative countries of this bloc in agribusinesses.
Finally, the bloc of Central American countries, which are characterized by a large indigenous population, small economies with a significant agriculture sector and one of the most intensive linkages with the United States of America. Costa Rica, El Salvador and Guatemala were chosen as being representative of this group.
The socio-economic specificities that influence the agribusiness sphere
Historical events permeate the normative and institutional framework of each country and, simultaneously, the agribusiness environment. Of the countries selected, Chile and Costa Rica are distinguished by the stability of their institutions that have facilitated both development of a market economy and foreign investment.
Some of the countries have overcome great conflict and civil war, e.g. El Salvador and Guatemala. Another characteristic of Central American countries is a high proportion of indigenous people in their populations. Colombia has also suffered the consequences of armed conflict, with varying degrees of intensity.
Guatemala and, in particular, El Salvador are interesting in terms of the peace processes they have implemented recently, as well as the incorporation of the marginalized rural population in agribusiness development projects. In contrast, Colombia continues to deal with the effect of conflict in a general way, although its major impact is felt in the rural sector on all public and private contractual aspects.
Selection criteria of the cases
The selected cases in each country correspond to small producers that participate in agricultural production and are successful in developing relationships with commercial businesses active in internal or external processing and/or trade.
Preference was given to those cases where small producers had participated in the processes of sustainable organization. During these processes, various forms of added value to the primary production have been incorporated inside the farm households or collectively into devices belonging to the organization.
In general, in most countries, one case concerns small producers that sell mainly to export markets, and another case concerns domestic markets with sales to supermarket chains or other agents.
The cases selected for each country were:
In Argentina: Federación de Cooperativas Agropecuarias de San Juan Ltda. (Federation of Agricultural Cooperatives of San Juan) (FECOAGRO). FECOAGRO seeks to improve living standards and support agricultural diversification by producing horticultural seeds and fodder.
In Chile 1: export of avocados and citrus of COOPEUMO Limitada; 2: asparagus and berries from COOPEUMO and Chacay for the frozen foods agro-industry.
Ecuador 1: community dairies of the parish of Salinas; 2: agribusiness cassava processors, agribusinesses.
In Colombia 1: Moras del Oriente; 2: uchuva for export in Sumapaz.
In Costa Rica 1: Asociación de Producción e Industrialización de Lácteos (Association of Milk Production and Industrialization).
In Guatemala 1: El Limón cooperative; 2: Cuatro Pinos cooperative.
In El Salvador 1: Sociedad Cooperativa Agroindustrial (SOCOAGRO), an agro- industrial cooperative; 2: Asociación de Añileros de El Salvador (Indigo-processing Plants of El Salvador).
Definition of agribusiness
Agribusiness is defined as business expansion in the agriculture and rural sector and its chains, from relationships involving contracting structures, alliances and associations mainly carried out by the private sector, by producers of the agriculture sector that are sustainable in the long term. In addition to a joint association of farmers, it involves various exogenous agents and agro-industrial chains, and may or may not include the support of public policies.
The agreements aim to guarantee some basic conditions for advancing competitive production, such as development of chains of the productive processes (mainly post-harvest), towards processing, marketing, supplying services to the chain, management and setting up links with final consumers.
In order to undertake the research, the following procedure was carried out:
The bibliography of case studies was revised; with a revision of the literature in terms of the agribusiness theme as well as entrepreneurial groups or clusters. The experience of the case studies was incorporated in project development.
A research guidebook, a project report and a final report were prepared by the Centro Colombiano de Estudios Económicos (CEGA) for the consultants.
The Programa de Desarrollo de la Agroindustria Rural para la América Latina y el Caribe (PRODAR) contacted its associates for case selection and to work on country reports. The cases were chosen according to their impact and their quality as proven examples of agribusiness linkages with small-scale producers. There was usually prior documentation on the case; information was completed through interviews with different agents and beneficiaries that participate in the agribusiness agreement.
Consultants associated with the PRODAR who were in charge of the case studies in different countries sent a preliminary report, which was revised. Observations on the case were then made.
Various issues revolve around the topic of agribusiness as it relates to small producers: Do the producers participate in the growing expansion of rural agribusinesses? How? What are the endogenous aspects contributing to promoting and expanding this kind of intervention? What is the direction of small producers' intervention in agribusinesses? Which endogenous aspects contribute to promoting and expanding the agribusiness linkages starting from small producers? Which environment is advantageous or adverse for agribusiness linkages that involve small producers in respect of public and private policies and the macroeconomic environment? How are agribusiness linkages developed for small rural producers in the context of globalization? What are the impacts of these linkages on the living standards of small producers?
Before addressing these questions, the following paragraphs define some terms as they relate to agribusiness linkages.
An agribusiness linkage is any link that, in addition to contributing to expanding businesses, is liable to be transformed into a contractual relationship even if it does not exist at the moment of conducting the study. For example, the technical or business training provided either by government or the associative organization is liable to be turned into a linkage of a contractual character with the third party.
A nodal agribusiness linkage is one that organizes or is based on a network of agribusiness linkages, and generates a series of multiple agribusiness linkages. For example, a nodal agribusiness linkage is one that arises between an associative organization and a member or beneficiary, because in this linkage, multiple linkages emerge to serve different fronts of production, processing and/or marketing. A secondary agribusiness link is one that does not have similar importance as it does not generate any other type of linkages.
An agribusiness matrix linkage is one that, although without a tangible presence in the organizational structure, is important as a source of a network of derived agribusiness linkages. In general, each linkage that signifies the creation and consolidation of sources of applicable innovation must have this matricial nature. An example of this agribusiness matrix linkage is one that is established to advance basic and applied research in agro-industrial or productive technology. Moreover, such linkages are characterized by innovations in supplying services to production, such as technical development of a cold-chain infrastructure. They could also be institutional innovations that enable the creation of new forms of financing, such as reserve funds, investment funds and price-stabilization funds. The matrix linkage creates derived agribusiness linkages, e.g. in the cold chain, training, maintenance, transportation, specialized transportation, storage service, and package design.
An endogenous agribusiness linkage is one that the associative organization defines, specifies and makes tangible in such a way that it causes a cost and benefit for the organization and/or its beneficiaries. This endogenous linkage is usually adopted by the associative organization. An exogenous agribusiness linkage is one that is provided through third parties to the associative organization and/or its beneficiaries; this may or may not cause an explicit cost, depending on the agreements with third parties or governmental organizations.
A stable linkage has the capacity to secure or stabilize the agribusiness relationship and has lasting long-term and positive consequences in the way in which they are related to the associative organization and its producers in order to make progress in the productive processes. An example of this kind of linkage is one that promotes the development of technical or entrepreneurial skills that simultaneously require the use of higher levels of education and skills. This is the case of work applied in use and risk administration, in quality control and supply planning, among others. An unstable linkage without fixation capacity is one that is created around a leader, without a supporting organizational structure.
Various forces with great economic impact have affected the field of agribusiness. On the one hand, some technical advances have privileged the development of services and means of transportation and communications. On the other hand, fiercer competition has emerged, no longer between individual businesses, but rather among groups of businesses gathered together as a cluster of corporative structures (between which processes of property concentration are simultaneously growing).
Agribusiness linkages could be classified as productive linkages or those referring to the processes of transformation, and service linkages of production management (which usually correspond to processes and transaction costs).
The two types of linkages tend to be interrelated, and to be determined reciprocally (that is, a great variety and number of productive linkages are required for more and different service linkages for the transaction of production). However, it is not necessarily a determined relationship. In some of the cases analysed, linkages for negotiations are highlighted as a result of their organizational strength and capacity to attractive public-sector, private-sector or policy support.
Agribusiness linkages become endogenous to the organization to the extent to which there is a clear promotion intervention by government or third parties. This could mean that the direct management of services is transferred to the associative organization. For this, a necessary budget is allocated where the scale of operation so justifies it, and provided that the requirements of the market and the business environment require that new and secondary quality requirements be fulfilled. On the other hand, exogenous linkages are maintained at the organization or where there is a favourable regional environment with diversity of horizontal chains, a for-profit business of limited scope, or where government contracts third parties.
Technical exchange in the rural environment is shown in the development of the rural agro-industry through the generation of new chains for added value in the raw product within the associative organization. This occurs by industrialization processes or by incorporating skilled work and services that add value, even to artisanal processes. According to the emphasis given, in the first case, scale economies are developed with intensive use of machinery and/or a productive infrastructure, such as a competitive strategy. In the second case, special market niches are promoted, with the emphasis on client service. The development of chains creates a favourable environment for agribusinesses as agents, services, enterprises and new labour and entrepreneurial skills are required. The main problem that arises is how to introduce this development of new chains in rural societies. This subject matter is discussed below according to the case studies analysed.
Competition and new forms of integration
Competition causes groups of enterprises to revise the way they are organized. It changes the profile of producers that are supported or, on the contrary, miss opportunities and perish. In this way, competition promotes new processes of coordinated organization in which the free competitive market is substituted or complemented through contracts, agreements or chain integration at the property level. This could make the competitive conditions much more efficient.
In this competitive environment, the probability of continuing to be successful is practically non-existent for private enterprises that carry out activities at the margin of an organizational structure. These organizational structures are able to keep pace with growing competition through continual adoption of innovations, adjustments and negotiations in their environment. In this way, the probability of success is distributed in a constantly growing proportion for the associative organization and according to the associate producer's performance.
At the rural level, the associative organization corresponds to various types of structures. There are chain organizations with a high degree of vertical integration. This is the case with many cooperatives that differentiate processes spatially and can intervene in large-scale operations with industrialized processes. There are also producers grouped spatially, not only by the primary but also the artisanal or semi-artisanal processes. In this case, they constitute rural ago-industry clusters.
The organizational structures include many agreements that regulate their forms, such as a group of enterprises interacting with its surroundings according to its intervention in either the public or private sector. Ongoing renewal of organizational forms requires the development of managerial skills, such as the capacity to coordinate, negotiate and employ a system of incentives or sanctions.
In turn, the type of institutional arrangement between enterprises and the public or private sector affects the sphere of agribusiness invention. This could incorporate aspects that had previously been under the government's dominion (e.g. the provision of services such as technical assistance, skills-building, credit and risk coverage). Moreover, government intervention or intrabloc economic cooperation agreements could contribute to moderating or intensifying competitive pressures, and, thereby, the profile of the agribusiness that remains or disappears.
The emergence of new forms of coordination that are different and complementary to competitive markets favours the agribusiness environment, enabling the creation and integration of new, more complex activities and services. On the other hand, there may be negative effects from the "dis-institutionalization" of agribusinesses, or marginalization of some producers through the regulatory norms that are complied with by the majority.
In this case, the question is how these new forms of coordination emerge, as well as the public or private support for their consolidation. The case studies enable some hypotheses to be analysed in this respect, as discussed below.
Effects of agribusiness linkage development on producers
Greater complexity in agribusiness linkages and new forms of coordination do not always favour the primary producer or different forms of rural agro-industry. The development of contracts could mean new sharecropping arrangements where producers do not participate in the design and negotiation of such contracts. On the other hand, in the different chains to the private sector, greater indexes of value added may be generated, whose benefits are not necessarily redistributed among the producers and their associative organizations.
The problematic aspect in this regard is: how can one simultaneously achieve a favourable agribusiness environment with positive effects on the living conditions of primary producers? The case study experiences also deal with this question.
Impact of macroeconomic, sectoral and regional environment in agribusiness linkages
Sectoral or macroeconomic policies signify a group of stimuli or explicit limitations to the development of agribusiness linkages. A decisive promotion of this kind of linkage could emerge at a sectoral level, from promotion mechanisms to the emergence and development of these linkages through financial, technological, entrepreneurial, commercial and normative support. In many of the countries in this study, this is the goal of policies that revolve around the development of productive chains. Even if not considered in the case studies, decentralization and development processes in the regions could also have indirect impacts on the local development of the productive chains.
Macroeconomic policy could have an impact on efforts undertaken at the sectoral or regional level in the way in which these are subordinated to other priorities of the national group. Some of the most important macroeconomic aspects that affect the agribusiness sphere are: exchange-rate policies; interest rates; capital flows; and investment policies. The central aspect of this theme is whether the macroeconomic and sectoral environment is favourable to developing the agribusiness linkage, and how this is generated and promoted.
Various case studies on products of the agriculture sector have been carried out at national and international level. All the known successful cases have had a direct impact on what is called the conceptual framework, such as the matrix linkages. Matrix linkages are those with the capacity to generate innovations that have the potential to be expressed in networks derived from agricultural linkages and that are important to support this success. Generally, in this way, the success of a product is explained by the development of an innovation process at the technological, business, commercial or institutional level, which leads to a better positioning of a product in the national or international market.
Some of the most successful cases (Jaffee and Gordon, 1992) have organizations that promote a product for export. These cases fulfil a minimum set of requirements, such as an adequate ecological environment and comparative advantages for lower costs of labour and inputs. These organizations also have capital and foreign technology in order to enable access to high-level technology and the permanent training and qualification of manual labour.
For example, in Chile, elements associated with success have been identified as: advances and innovations in the type and quality of the product; knowledge of the market; suitable marketing mechanisms; delivery punctuality; and technological innovation. In the case of Chilean salmon, Fundación Chile was fundamental because it introduced technology for intensive salmon farming. For this reason, Fundación Chile turned to practical activities (consultancy in new businesses and contacts with foreign organizations) in order to acquire the necessary knowledge at the technical and commercial levels.
Successful organizations are characterized by supplying the producer with a minimum of necessary services, such as internal and external sanitary control, training and control for suitable management of quality, packaging and display, as well as a product-purchase guarantee. In a complementary way, public relations are promoted for international market development, a lobby is formed to avert legal threats, incorporating innovative businesses is promoted, and studies are carried out for the legal safeguarding of the product at international level.
Successful cases at the organizational level have at least a commercial division (or a trader), a marketing division, and a technical division, which carries out quality control and provides seals of quality to those fulfilling the requirements. The trader negotiates with enterprises in the international markets.
In various cases (such as the wine industry and the forestry sector), some individual circumstances have brought success, e.g. tradition, training and the presence of a critical mass of qualified personnel as well as universities or technological centres that have developed advantages and technologies in these products. On many occasions, government has accelerated the innovation processes with long-term incentives, tax exemptions, contributions of initial capital or security, and incentives to foreign investment in order to develop certain kinds of activities.
Innovations that guarantee success have incorporated significant services of transportation, storage, cold-storage facilities and return delivery. Innovations at the level of primary production are directed towards greater precision and certainty in the results of the processes. For example, in the case of fruit, innovations have been directed towards competitive location and the design and management of orchards, as well as the improvement of irrigation systems, crops and certified genetic material.
In the case of fruit, there have been critical moments of change (Meller, 1995) in which the different range of fruit products becomes decisive for success in markets. Although the producers initially controlled most of the decision-making, these circumstances have changed. In the past, managerial efficiency was measured by the capacity of the producer or exporter to incorporate new technologies and react to market changes. Today, it is measured according to the ability to handle crises, risks and business complexity. In this way, contracts, participation and basic norms of interaction between producer and exporter are redefined. Other agents enter and selling strength becomes an essential factor.
A review of successful case studies (Jaffee and Gordon, 1992) reveals that these are in line with changes in the conditions of their environment and income, e.g. processed foods whose domestic demand grows significantly. The organizations that carry out the final trade require quantities of stable supplies distributed on time. Moreover, they need to meet the minimum requirements in quality and quantity, which increase as markets grow.
Important conditions of the environment are: macroeconomic stability; security provided by government; infrastructure; normative aspects; and public goods provided by grants in research and technology. Products are successful where these conditions are present, and generate vertical integration (usually under the control of the final processor, or of the trading enterprise that operates on a large scale).
Other evidence from the above-mentioned case studies (Rabellotti, 1996) indicates that systems of small and large production have some common requirements in terms of the development of agribusiness linkages. These include: availability of a good collection of knowledge, as shown in education levels, technological uses and innovations; financing supply in accordance with the required technological and entrepreneurial changes; and innovations.
However, small-scale production has certain particularities that permeate the kind of connections established with agribusiness linkages. These are different from where the stakeholders are multinational businesses operating mainly at wide scales. Such particularities are: the significant use of manual labour; a manifestly adaptive behaviour in facing changes in their environment; and production decisions that depend largely on the structure, needs and relationships of the family and its social group.
Entrepreneurial innovations associated with rational forecasting calculations usually involve previous processes of basic, relatively expensive research, as well as risky investments that open the way for new goods and services that should be marketed both quickly and practically. They frequently involve negotiations with the public sector for financing these previous investments and for the legal rights to the results.
In small-scale production systems, this forecasting has been virtually absent. Therefore, an associative organization capable of copying or emulating entrepreneurial organizations operating at a large scale is needed. Innovations may emerge as empirical/artisanal knowledge is combined (usually transmitted through cultural heritage) with scientific knowledge. Known successful cases involve rapid and intensive changes in the field of agribusiness with the participation of small-scale producers emerging from hybrid organizations, that is, associations that integrate intensive family labour with managerial strategies on a large scale in the segments of processing, trading and provision of productive services to farmers (Suárez, 2001).
A hybrid organization may take on a formal structure, as in cooperatives in which large, medium-sized and small enterprises coexist. It may be planned as a complex system of interrelationships, coordinated by a body or agent with great negotiating power, as has been the case for many decades with the Federación Nacional de Cafeteros in Colombia.
Recent institutional developments suggest that these organizational structures could be partially substituted or complemented through contracts. However, cases of hybrid structures operating mainly through contractual instruments are not known.
The main characteristic of successful hybrid structures is that they link together the instruments of business rationality and profitable calculations with the features of small-scale production, such as adaptation. In this way, accumulation mechanisms, knowledge, research and training, and trade coexist with norms of incentives, sanctions and reciprocity in support of the processes of change, modernization, emulation and learning.
The active agent in these symbiotic, successful structures could be one or many entrepreneurial agents that have either an organizational form or accumulative tradition (e.g. religious communities) or, in more exceptional cases, the government or authorities. Success can be achieved to the extent that the active agent not only carries out business, but also uses the instruments all of these structures (calculations, quantification and anticipation), and the passive agent participates in adapting to cultural norms, assimilating the incentive and sanction regime, redistributing benefits fairly, showing loyalty, and joining the organizational structure.
Regional or local clusters can emulate this symbiotic structure at a spatial scale by establishing relevant suitable linkages between small producers and financial, educational, commercial and training organizations. Clusters in India, Italy and Brazil are examples of this type of structure (Rabellotti, 1996).
The agribusiness linkages generated within this symbiotic structure are more liable to diversify and develop in response to changes and the new circumstances of globalization. The calculation capacity and anticipation of the entrepreneur (using quantitative instruments of information, evaluation and knowledge) are applied to the particularities of small-scale production in order to generate new instruments to connect with the surroundings. A good example is provided by the design of incentives by the supermarket chains to promote a supply of maquilas among the small-scale producer processors. Another example is the dissemination of new and relevant information by active business agents in order to promote a line of innovations, which would otherwise not take place among small-scale producers.
Led either actively or managerially, the symbiotic structure induces organizational changes to face fierce competition resulting from the globalization processes. More aggressive strategies can be adopted inasmuch as they incorporate and intensify the business ingredients (new agents, new instruments of accumulation and innovation) or encourage a more marked corporate behaviour by producers participating in the agribusiness linkages. This is the goal of strategic alliances - incentives to make production more efficient or sanctions in the event of non-compliance with the main market demands. In an extreme case, this may filter out stakeholders and agents in order to grant priority to the most efficient according to the market conditions.
A problematic aspect is how a symbiotic organizational structure could have an impact on improving the living standards of primary producers. The condition for unifying and keeping the symbiotic organization coherent with a high participation of small producers is legitimacy. Such legitimacy emerges in the way in which two types of instruments are incorporated. One type belongs to the entrepreneurial vision, such as democratic participation of individuals in the organization and in decisions adopted. The other type involves reciprocities and forms of equal redistribution of benefits among the associates and their social networks (Suárez, 2001).
Frequently, these two simultaneous conditions of democratic and fair participation do not lead to tangible results. On the contrary, there are adjustment processes throughout with conflicts among interest groups or with demands by members or enterprises as a result of the interactions between heterogeneous procedures and agents.
Another problem considered by the research is the impact of the macroeconomic and sectoral environment (regional and local) on the field of agribusiness. The environment could be defined here as the situation of the markets and its relationship with the development of agribusinesses. A wide, solid and growing domestic and regional market is an important condition for progress in agribusiness linkages. This condition facilitates a minimum of specialization in work, jobs and activities, and at the same time, a level of technological development that enables projections towards major markets, such as international markets. Some favourable sectoral policies, such as credit lines under conditions of development and government-regulated intervention according to chain-integration agreements (in tariffs, technological development, and training), require coherence in the macroeconomic sphere, in exchange rates and in public investment.