LARC/02/3-Rev.1

Table of Contents

I. Introduction

II. Changes in traditional approaches to rural development

III. Partnerships as a strategy to improve food security and rural development

IV. An enabling environment for the building of partnerships

V. Recommendations

I. Introduction

1. There is increasing recognition that current development trends focus on the possibility of establishing agreements and consensus among three sectors of society: State, business and civil.

2. Convergence of these three sectors reinforces the role of civil society in producing social and economic wellbeing. It also enables the State to orient its actions in many directions: promotion of different forms of ownership, regulatory framework with differentiated policies, creation of an enabling environment for participation of the private sector, direct and/or targeted support interventions for distinct population groups.

3. As regards the rural sector, an effective strategy for integrated development needs to incorporate all social actors, including small farmers, family farms, indigenous populations, women, commercial farmers, agro-industrial entrepreneurs, investors, and local and national government authorities.

4. In such a context, food security and rural development require not only an economic policy package, but also a series of social and political conditions brought about by the economic modernization and democratization of our societies.

II. Changes in traditional approaches to rural development

6. In the last 20 years, rural development has been engulfed in dynamic economic reform, a process that has comprised three phases in Latin America and the Caribbean.

7. The first phase, in the 1980s, was mainly aimed at achieving economic stabilization. Important structural adjustment programmes were put into effect, aiming to reduce inflation and interest rates and to achieve competitive exchange rates.

8. The second phase, in the late 1980s and early 1990s, accelerated the processes of trade liberalization, privatization and deregulation, the intention being to generate efficient markets and reduce transaction costs.

9. The third phase has been mainly institutional, to address market inadequacies, and cooperative in the sense of getting the different social actors to work together. In this phase, which has in fact barely begun in several countries of the Region, application of the rule of law, respect for property rights, accountability and decentralization have been the main operational thrusts of governments and other social players (e.g. producer economic organizations, NGOs, joint ventures).

10. To a large degree, the organizational determinants of the agro-food system are being modified by structural change and the impact of globalization. The traditional paradigms of competition in the markets are being replaced by emerging paradigms where competitiveness, speed of innovation, systems of coordination and cooperation, and capacity play a key role.

11. The agro-food system has also been affected. Systems of information, control, quality, management and logistics have evolved, sometimes becoming more rapid, dynamic and flexible.

12. Agriculture is also following this trend: the traditional strategy of focusing on agricultural production is ceding to the new approach of satisfying consumer habits, which are now directed towards more highly processed food. Optimization of processes has moved from segmentation to integration, while production is increasingly organized in the form of interdependent production networks, as opposed to independent producers.

13. This new scenario calls for an expansion of the traditional concept of agriculture based on primary activity to a broader agriculture operating on open markets. This requires a new relationship between government and rural population and a change in their respective roles in the rural economy.

III. Partnerships as a strategy to improve food security and rural development

15. Small farmers produce seasonally and are individual purchasers and suppliers who cannot exploit economies of scale. They are not specialized and usually have to operate under household economies where the functions of consumption, investment, labour and social activities are indistinct.

16. Association incentives do not always exist in the agricultural and natural resource sectors, but depend more on the existence of pre-determined production conditions, such as the environment and the nature of the product in question, and related transactional processes. Assuming that agro-climatic conditions are favourable to diversified agricultural production, the availability of physical and institutional infrastructure will largely determine the possibilities of establishing partnerships.

17. The structural changes that were implemented in the sector during the first phase placed most farmers in a difficult situation. The vacuum left by the absence of coordinating mechanisms to replace those existing at the beginning of the period of reform led to higher transactional costs in terms of access to information, credit and market networks, among other factors. Such a situation clearly restricted the competitive performance of agricultural and forest producers in the Region and put their survival at risk in markets where competitiveness had become the first rule of participation. This led to initiatives to mitigate the impact of market inadequacies by establishing coordinating mechanisms in the form of partnerships.

Main elements and characteristics for building partnerships

18. The term partnerships can be applied to a wide range of situations and dimensions, ranging from informal exchanges, the sharing of information and resources, to the setting up of new entities. It is important to consider partnerships as a process rather than a result, given the dynamic nature of exchange relationships, objectives, goals and expectations.

19. Partnerships enable perceptions, capacities and skills to be shared in such a way as to exploit the synergies of interaction and complementarity of strengths and weaknesses of organizations in different sectors. In this sense and in more specific terms, by producing public and private goods and services, partnerships represent not only an expression of positive intention, but are also a key component of institutional architecture to overcome market failings and achieve equitable and balanced rural development.

20. Similarly, partnerships involve different players in the production process who voluntarily agree to link up for the exchange of resources, generating commitments to the achievement of a common objective, and where the principle virtue is added value.

21. Thus, partnerships can be seen as inter-organizational linkages in the agricultural and rural sectors, especially in agribusiness. An increasing number of small farmer groups in Latin America are collaborating with agro-industry and agribusiness through formal and informal arrangements, involving the governmental, business and civil sectors.

22. Another conception of partnerships in geographical or production chain terms is the so-called "cluster". The concentration of a group of small producers or small agro-industrialists intervening at different links of the production chain can obtain good results in a process of division of labour and specialization.

A summary classification of types of partnership

23. In general, partnerships occur when the parties have a common strategic objective; when there is a specific motivation for mutual benefit. In agriculture, such links occur between successive stages of the input supply, production, processing and marketing chains and are known as vertical linkages. However, there are also horizontal linkages, such as agreements or mergers between companies at the same level of the chain or the formation of producer associations that can influence vertical linkages by enhancing the influence and bargaining power of the parties involved. Many of the problems that occur in forming effective vertical linkages can be explained by the absence of compatible objectives and entrepreneurial structures between the small producers, on the one hand, and the market operators, on the other.

24. Cooperation between entities can take a variety of other forms and can involve few or many players, and can cover distinct thematic areas. The type of activities can be classified according to the level of diversity of the players and/or their specific nature. Partnerships made up of two or, at the most, three players can be classified as simple, and partnerships comprising multiple players as complex. There are also mono-thematic partnerships centring on one single topic area, and multi-thematic partnerships covering a range of topic areas (see Table Nº 1).

Table Nº 1

25.  The process of building a partnership can be divided into four stages: (i) motivation: the parties determine their cooperation requirements, design a strategy and identify their potential counterparts; (ii) establishment: the mechanisms for the exchange of attributes between parties are set up, on the basis of criteria of transparency, credibility and flexibility; (iii) development: focusing on the monitoring of exchanges and the derivation of benefits, where success will depend on the clarity of prior definition of parties' rights and obligations; and (iv) dissolution: occurring once the set objectives have been achieved or when the mechanisms prove dysfunctional and therefore preclude achievement of the partnership objectives.

Selected linkage modalities

26. There is a clear tendency to resort to forms of linkage between producers and agribusiness to deal with the challenges of globalization and structural change, and this is necessarily influencing the evolution of agro-food chains and inducing greater vertical coordination. Competition is now the main criterion for market involvement, which has widened the gap between producers able to compete and those unable to do so because of the high costs. The many forms of linkage that have been identified include contracts, associations, informal financial services and support structures among the farmers themselves. Innovatory business arrangements are also being put together using traditional structures, such as cooperatives. Such linkages can be viewed as an intermediate point in market coordination mechanisms and constitute what we refer to as partnerships.

27. One particular partnership modality is the agricultural contract, which can be defined as agreements between producers and companies (agro-industries, agribusinesses, etc.) as well as between producers specifying conditions of production and/or marketing of a particular product. In this sense, contract agriculture signifies not solely the production of the raw material but also represents upstream integration regarding production factors and distribution of inputs, as well as downstream integration as regards processing and marketing. The nature and terms of such contracts can vary according to product, producer, business corporation and agribusiness. In their simplest form, a company offers producers a contract before sowing to secure part or all of the future harvest, often setting the purchase prices beforehand. At a more advanced level, the companies can supply inputs, prepare the land and provide extension, packaging and transportation services. In extreme cases, companies can take over such responsibilities, turning the farmer into a worker on his own land.

28. These contracts represent varying degrees of opportunity and risk for both parties. Producers might opt for such a relationship because of stability of income, security of market, credit and financing, and access to inputs and technical services. As for the companies, the contractual relationship enables them to intervene in and exercise control over the production process, reducing production and transaction costs. It also gives them access to products at lower cost; control over the supply of inputs; ability to respond in a timely manner to market demand; and diversification of their commercial operations. The risks to the producer include variability of income because of excessive market fluctuations and/or a lowering by the company of quality standards. The company faces the risk of unequal product quality; a degree of dependence on the producer; and the danger that their partners will not honour their commitments in the event of rising prices and will sell to the highest bidder. Such ties function well when, despite these risks, relationships of trust, loyalty and credibility are established between producers and the business enterprise (see Box 1).

29. Another form of linkage between producers and agribusiness derives from the changed conditions of rural financial mediation between small farmers and rural entrepreneurs and the formal banking system. The dispersion of clients and the small amounts loaned incur high transaction costs both for borrowers and the bank. This and the perception that operations involving small rural clients carry higher risks have limited the use of formal financial channels. This has in turn led to the emergence of alternative forms of informal credit, such as financing by the input suppliers and by the purchasers of the agricultural product; self-financing from harvest proceeds of the farmers themselves; savings and credit associations; community financing (savings funds); and traditional rural moneylenders (see Box 2).

30. The basic ingredient for the success of such relationships is mutual trust between parties. One of the main problems that has limited their functioning is the failure of producers to pay, and one of the main shortcomings undermining such forms of financing and other forms of productive association is the absence of mechanisms for the settlement of disputes. These do not necessarily have to be judicial and can take the form of mediation or arbitration bodies.

31. In cases where interrelations cannot easily be established, producers can be encouraged to help themselves by diversifying their production and organizing themselves for the procurement of inputs and financial services and for marketing their products. The development agencies are promoting methods of self-help that require simple levels of technology and external financial resources. These methods do not substitute agro-industries or agribusinesses, but support less specialized functions such as primary processing, local transportation and the short-term storage of inputs and products.

32. Where there are no local providers and no agricultural contract arrangements or similar mechanisms for the provision of inputs, producers can benefit from organizing themselves into groups for input procurement. A special group could for example be formed to coordinate orders and effect joint purchases to reduce costs, and permanent groups could also be formed to administer the savings funds of producer organizations (see Box 3).

33. Where there are no possibilities of establishing marketing associations, producers will have to identify the buyers and organize delivery of their products to the market or to individual purchasers directly, or get interested parties to visit their croplands or points of assembly or collection. In such cases, the producers will have to identify their potential clients and be familiar with market prices and terms and conditions of sale. Where producer groups and associations have formed a higher level of organization, such as a cooperative, this could act as a professional organization providing services of extension, collection, dissemination of market information and training in marketing.

34. As regards marketing, farmers are at a distinct disadvantage in relation to the agribusinesses with whom they wish to form ties, mainly because they lack information on market prices, volumes, quality standards, alternative market channels and other characteristics that govern market transactions. One way to facilitate interaction between farmers and agribusiness is to improve the information systems. Governments and national or international donor agencies can use projects and programmes to improve the flow and quality of information to farmers. This is an area in which international cooperation can play a role in building transparency and facilitating the transactions of small producers. Governments can sponsor market adjustment exercises in the form of meetings or workshops with rural promoters, producers and agribusinesses. This would help improve reciprocal understanding of limitations and requirements and could lead to the conclusion of business agreements (see Box 4).

35. Cooperatives are a form of linkage between producers. In recent decades, the region has seen a proliferation of cooperative associations for credit, production, export, training, sale of services, collective systems and marketing - local and large-scale - and for the procurement of inputs, machinery and equipment. Their continued existence is clear evidence that there is an organized economic sector capable of responding innovatively to the challenges of the rural sector. The government services, donor organizations and NGOs can help identify already existing "emerging cooperatives" and support their organizational development. The aim should be to help the groups define their objectives - mobilization of savings or specific post-harvest operations - to ensure the coherence and continuity of the group, and to help them establish structures and group organization. Over the course of time, these groups will be able to achieve greater organizational maturity which will then enable them to obtain economies of scale, to undertake their own entrepreneurial activities and to secure access to formal credit. Government extension services and NGO workers could act as group facilitators. Support to producer organizations is perhaps the principal contribution that governments and international agencies can provide to promote the integration of small farmers with agribusinesses.

IV. An enabling environment for the building of partnerships

37. In general, this calls for the existence of appropriate legislation, rules and regulations and the application of a juridical regime. In particular, it requires that private property and contracts be protected and that there is a judicial authority that can ensure that contracts are honoured in full and without excessive delay. However, where large numbers of individual small farmers are involved, such judicial action may not be practical or politically appropriate for the handling of disputes and controversies, suggesting that formal or informal intermediary bodies could exist for the settlement of differences.

38. It has become increasingly clear in recent years that agricultural and rural development has been hampered by a variety of institutional vacuums. On the one hand, there have been deficiencies in public institutions, but even more importantly, there have been inadequacies in the social institutions that are the bedrock of a market economy: rights of ownership and freedom of contract and association. The challenge for public policy is therefore to provide an environment in which rural economic activity can develop and, in doing so, strengthen the mobilization of social groups and thus help create social capital. Governments can support the institutions as an independent arbiter or as a reference service for small producers certifying the good faith of borrowers and agricultural producers (see Box 5).

39. One important factor for strengthening the environment for the formation of partnerships is security of land tenure, as the regularization of property rights is basic to the development of current agrarian reform in the Region. As a result of structural reforms, agrarian reform in some countries of the Region has been enacted through programmes of land distribution via the market, discarding the policies of free land distribution followed until the 1980s. Since 1993, Central America has promoted various programmes to address demand for land, such as the Land Bank in El Salvador to attend to those affected by the civil war, the Land Fund in Guatemala and the Land Access Programme (PACTA) in Honduras (see Box 6).

40. We can see therefore that, in the face of increasingly complex markets and a highly diversified rural world, the institutional system plays a fundamental role in promoting and strengthening partnerships in agriculture, forestry and fisheries. This is the only way to ensure genuine food security and sustainable rural development. The promotion of partnerships for food security and rural development is a new strategy that is beginning to take shape. Different forms of partnership between sectors of the economy increase the effectiveness of development efforts and expand enormously the capacity of communities to initiate and sustain their own development efforts.

41. The development of partnerships is a medium- and long-term process that permits the building of commitments and collaboration, often required by rural players as the different forms of partnership can help increase resource mobilization and access, can help generate mutual capacities among the parties, and can form the basis for innovatory solutions to achieve results that would be hard to obtain in isolation.

V. Recommendations

42. The following recommendations are made on the basis of the above considerations and taking into account the fact that the perception of rural development has been turning towards a greater interlinkage between agriculture and natural resources, with the agents of production playing an active part in this evolution:

43. To formulate specific strategies for the forging of partnerships involving the three basic sectors of society (state, business, and civil) and building upon intersectoral synergies.

44. To identify and encourage the creation of distinct territorial areas, promoting intra- and inter-regional links for the promotion of partnerships, with the support of local and national governments through:

1. the conduct of forward-looking studies on actions and/or development of product/systems (production chains);
2. the identification of representative players in the spheres of government, civil society and business; and
3. the promotion of workshops, meetings and events to publicize the advantages and benefits of building partnerships.

45. To promote and encourage the establishment of links among production agents, with the support of business organizations, research centres, national and international universities associated with agribusiness, which will require:

1. fostering contacts between production agents interested in establishing associative and collaborative links;
2. promoting cooperation networks that will help solve specific problems relating to individual product/systems;
3. developing appropriate methodologies to optimize the complementarity of resources between associations and/or groups of small producers and the agribusiness sector;
4. organizing meetings for the exchange of experiences and discussion of topics of common interest to leaders of producer organizations and the business sector; and
5. implementing a system of interactive communication that will provide information on the various forms of linkage that exist between production agents.

46. To foster trade and investment opportunities between small producers and agribusiness to improve levels of competitiveness, through the promotion of trade fora and conferences, and to encourage the establishment of business management centres among associations of small producers and/or agribusiness, with a particular focus on training and the development of negotiating skills of production agents.

47. To promote the establishment of mechanisms to reconcile interests and settle differences between potential partnership members.

48. The strategy to achieve food security and rural development through the promotion of partnerships should be rooted in the successful experiences and good practices that have been achieved in the Region.

49. The information and experiences outlined in this paper suggest that FAO should serve as a permanent support body for the formulation of policy and generation of projects that will foster the forging of partnerships to achieve food security and rural development.