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Can Jamaica turn agriculture around?
By Keith Collister
Wednesday, September 23, 2009
The local launch of the 2009 United Nations World Investment Report last Thursday provided Jamaica Trade & Invest with a clearly welcome opportunity to address the issue of how to encourage investment in agriculture.
In particular, the report focused on the role Transnational Corporations (TNCs) can play in the agricultural production of developing countries.
It notes that the 25 largest agriculture-based TNCs, companies primarily located in the agricultural production segment of agri-business, such as farms and plantations, differ from the top agriculture-related TNCs, or those primarily in upstream or downstream stages of these value chains. The former have a significant number of developing country firms among their ranks, while the latter do not.
International demand for agricultural commodities has also been spurred by other factors such as biofuel initiatives around the world, resulting in a spate of investments in developing countries in the cultivation of sugar cane, grains, such as maize, and oilseeds, such as soya beans, as well as non-food crops.
Minister of Industry, Investment and Commerce Karl Samuda, in opening the event, noted the pressure on world food supply, and the importance of putting some of Jamaica's unused arable land to work. He argued, however, that, as with any product, getting foreign capital to invest in specific crops would require the proper packaging of the investment opportunity.
The timeliness of such a conversation on how to get increased agricultural investment is highlighted by recent calls for plans to move the country forward in difficult times. For example, the Opposition has recently noted that when it came out of office in 2007 there were "several" such plans including an "Agricultural Plan".
Assessing the current state of agriculture
According to Dr David Lowe, outgoing chair of the Agricultural Development Corporation, agricultural production declined 30 per cent between 1996 and 2007, while its contribution to GDP declined from 9.2 per cent in 1996 to 5.3 per cent in 2007.
Jamaica is a net importer of food, with imports rising from US$479 million in 2002 to US$886 million by 2008, while it is estimated that 61 per cent of the country's food requirement is currently met from imports.
Some of the reasons for this poor performance, according to Lowe, are poor farming practices, including improper use of fertilisers, poor planting material, and lack of crop rotation.
Poor pre- and post-harvest techniques, for example in the areas packaging and storing, can create losses ranging between 30 per cent and 45 per cent of production.
Agriculture is a high-risk business, suffering from meteorological hazards, including hurricanes and tropical storms such as Dean, Ivan, Gustav, as well as lack of supporting infrastructure, and the consequent poor supply chains.
Finally, cheaper imports, the lack of transparency in pricing, and the inequitable pricing of what is actually bought locally from producers, create an environment that discourages the return required to create new agricultural investment in capital and labour. This problem is compounded by lack of access to affordable capital.
The Opportunity
Lowe said he believes Jamaica has an opportunity to compete in areas where it has a competitive advantage due to its proximity to lucrative markets.
It will, however, have to compete on quality where we can command a premium that is understood and accepted by the market.
Opportunities to expand our competitive brand advantage include our "extended family" in the Diaspora, the new tourists who visit each year and the tremendous branding opportunity to leverage our culture, entertainment and sport successes, for example, our newest ambassador, Usain Bolt.
Jamaica will need, however, to develop niche markets, where its competitive advantages are strong, such as spices, like hot peppers for instance.
Neutraceuticals represent another key opportunity. The global market for neutraceuticals is estimated at US$60 billion. Jamaica's Scientific Research Council (SRC) has been conducting extensive research and testing Jamaican home-grown plant materials such as ginger, fever grass and rosemary to explore ways of extracting these ingredients for medicinal or health purposes.
Lowe argued that Jamaica has 150 thousand families that rely heavily on agriculture, most of them small scale, but the challenges and "policy weaknesses" in the past have held us back.
One key area of change would be "crop production as contract farming". This already exists with large domestic agro-businesses such as Jamaica Broilers.
According to the World Investment Report, contract farming is a significant component of TNCs' participation in agricultural production, in terms of its geographical distribution, intensity of activity at the country level, coverage by commodities and types of TNCs involved.
Contract farming can be defined as non-equity contractual arrangements entered into by farmers with TNC affiliates, or agents on behalf of TNCs, whereby the former agree to deliver to the latter a quantity of farm outputs at an agreed price, quality standard, and delivery date.
It is an attractive option for TNCs because it allows better control over product specifications and supply than spot markets. At the same time it is less capital-intensive, less risky and more flexible than land lease or ownership. From the farmers' perspective contract farming can provide predictable incomes, access to markets and TNC support in areas such as credit and expertise.
Economic Impact
Overall, the World Investment Report argues that TNC involvement in developing countries has promoted the commercialisation and modernisation of agriculture. Although TNCs are not the main agent driving this process, they have played an important role in a number of countries by investing directly in agricultural production and through non-equity forms of involvement such as contract farming.
TNCs engaged in contract farming activities and other non-equity forms are spread worldwide in over 110 countries across Latin America, Africa and Asia. In 2008, Switzerland-based food processor Nestle had contracts with more than 600,000 farms in over 80 developing and transition economies as direct suppliers of various agricultural commodities. Similarly, Singapore-based Olam has a globally spread contract farming network with approximately 200,000 suppliers in 60 countries, most of them developing nations.
Infrastructure development, which can be supported by TNC investment, is critical as a means of trade facilitation for agricultural goods. Possibilities include improving existing transportation systems, investing in trade facilitation, providing sufficient post-harvest storage facilities and renovating outdated water irrigation infrastructure.
Can Jamaica turn agriculture around?
By Keith Collister
Wednesday, September 23, 2009
The local launch of the 2009 United Nations World Investment Report last Thursday provided Jamaica Trade & Invest with a clearly welcome opportunity to address the issue of how to encourage investment in agriculture.
In particular, the report focused on the role Transnational Corporations (TNCs) can play in the agricultural production of developing countries.
It notes that the 25 largest agriculture-based TNCs, companies primarily located in the agricultural production segment of agri-business, such as farms and plantations, differ from the top agriculture-related TNCs, or those primarily in upstream or downstream stages of these value chains. The former have a significant number of developing country firms among their ranks, while the latter do not.
International demand for agricultural commodities has also been spurred by other factors such as biofuel initiatives around the world, resulting in a spate of investments in developing countries in the cultivation of sugar cane, grains, such as maize, and oilseeds, such as soya beans, as well as non-food crops.
Minister of Industry, Investment and Commerce Karl Samuda, in opening the event, noted the pressure on world food supply, and the importance of putting some of Jamaica's unused arable land to work. He argued, however, that, as with any product, getting foreign capital to invest in specific crops would require the proper packaging of the investment opportunity.
The timeliness of such a conversation on how to get increased agricultural investment is highlighted by recent calls for plans to move the country forward in difficult times. For example, the Opposition has recently noted that when it came out of office in 2007 there were "several" such plans including an "Agricultural Plan".
Assessing the current state of agriculture
According to Dr David Lowe, outgoing chair of the Agricultural Development Corporation, agricultural production declined 30 per cent between 1996 and 2007, while its contribution to GDP declined from 9.2 per cent in 1996 to 5.3 per cent in 2007.
Jamaica is a net importer of food, with imports rising from US$479 million in 2002 to US$886 million by 2008, while it is estimated that 61 per cent of the country's food requirement is currently met from imports.
Some of the reasons for this poor performance, according to Lowe, are poor farming practices, including improper use of fertilisers, poor planting material, and lack of crop rotation.
Poor pre- and post-harvest techniques, for example in the areas packaging and storing, can create losses ranging between 30 per cent and 45 per cent of production.
Agriculture is a high-risk business, suffering from meteorological hazards, including hurricanes and tropical storms such as Dean, Ivan, Gustav, as well as lack of supporting infrastructure, and the consequent poor supply chains.
Finally, cheaper imports, the lack of transparency in pricing, and the inequitable pricing of what is actually bought locally from producers, create an environment that discourages the return required to create new agricultural investment in capital and labour. This problem is compounded by lack of access to affordable capital.
The Opportunity
Lowe said he believes Jamaica has an opportunity to compete in areas where it has a competitive advantage due to its proximity to lucrative markets.
It will, however, have to compete on quality where we can command a premium that is understood and accepted by the market.
Opportunities to expand our competitive brand advantage include our "extended family" in the Diaspora, the new tourists who visit each year and the tremendous branding opportunity to leverage our culture, entertainment and sport successes, for example, our newest ambassador, Usain Bolt.
Jamaica will need, however, to develop niche markets, where its competitive advantages are strong, such as spices, like hot peppers for instance.
Neutraceuticals represent another key opportunity. The global market for neutraceuticals is estimated at US$60 billion. Jamaica's Scientific Research Council (SRC) has been conducting extensive research and testing Jamaican home-grown plant materials such as ginger, fever grass and rosemary to explore ways of extracting these ingredients for medicinal or health purposes.
Lowe argued that Jamaica has 150 thousand families that rely heavily on agriculture, most of them small scale, but the challenges and "policy weaknesses" in the past have held us back.
One key area of change would be "crop production as contract farming". This already exists with large domestic agro-businesses such as Jamaica Broilers.
According to the World Investment Report, contract farming is a significant component of TNCs' participation in agricultural production, in terms of its geographical distribution, intensity of activity at the country level, coverage by commodities and types of TNCs involved.
Contract farming can be defined as non-equity contractual arrangements entered into by farmers with TNC affiliates, or agents on behalf of TNCs, whereby the former agree to deliver to the latter a quantity of farm outputs at an agreed price, quality standard, and delivery date.
It is an attractive option for TNCs because it allows better control over product specifications and supply than spot markets. At the same time it is less capital-intensive, less risky and more flexible than land lease or ownership. From the farmers' perspective contract farming can provide predictable incomes, access to markets and TNC support in areas such as credit and expertise.
Economic Impact
Overall, the World Investment Report argues that TNC involvement in developing countries has promoted the commercialisation and modernisation of agriculture. Although TNCs are not the main agent driving this process, they have played an important role in a number of countries by investing directly in agricultural production and through non-equity forms of involvement such as contract farming.
TNCs engaged in contract farming activities and other non-equity forms are spread worldwide in over 110 countries across Latin America, Africa and Asia. In 2008, Switzerland-based food processor Nestle had contracts with more than 600,000 farms in over 80 developing and transition economies as direct suppliers of various agricultural commodities. Similarly, Singapore-based Olam has a globally spread contract farming network with approximately 200,000 suppliers in 60 countries, most of them developing nations.
Infrastructure development, which can be supported by TNC investment, is critical as a means of trade facilitation for agricultural goods. Possibilities include improving existing transportation systems, investing in trade facilitation, providing sufficient post-harvest storage facilities and renovating outdated water irrigation infrastructure.
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