Promoting Agricultural Value Chains
In the OIC Member Countries
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Thirdly, quality-based competition has led to increased levels of vertical coordination by
consolidated large buyers, particularly retailers, and increasing differentiation at the
production level (Reardon et al., 2003; Maertens & Swinnen, 2009). As higher and more
complex quality demands increase the risk of supplier failure, developing stronger
relationships and higher degrees of coordination between actors is frequently used to ensure
that supply matches demand. Large buyers have also shifted towards working with fewer
groups of preferred, generally large-scale suppliers capable of meeting their requirements (Lee
et al., 2012). This poses inherent challenges to smaller suppliers who are not able to comply
with the high requirements of standards and buyer specifications. Meeting high quality
demands requires skills and technical assistance that smallholder farmers often do not have
access to.
2.1.3 Geographical shifts and the growing importance of emerging
economies
The geographic dimension of global agricultural value chains has recently experienced
significant transformation due to the increasing demand for agricultural raw materials and
products by China, India and other emerging economies that have become major players in the
global economy. Previously these countries were largely integrated into global chains as
producers and exporting countries; nowadays they are also shaping global demand as
consumer countries driven by increases in population, disposable income and urbanisation.
Forecasts by the FAO predict that overall food consumption will increase by 70 percent
between 2006 and 2050, driven mainly by demand from Asian and African countries. This is
expected to lead to increased demand for protein-rich foods, such as meat and dairy products,
and value-added food, such as processed or ready-made food (OECD-FAO, 2014). Most major
agriculture and food companies have therefore already targeted the emerging markets for
growth (KPMG International, 2013a).
The shift in end markets from the North to the South has been accelerated by the 2008-2012
global economic crisis (Kaplinksy & Farooki, 2011). The resultant growing South-South trade
has major implications for developing country suppliers. On the one hand, emerging markets
often have lower entry barriers and less stringent product and process standards, for instance
regarding food safety. This can facilitate increased participation of those suppliers that would
otherwise be excluded from global value chains (Gereffi, 2014). Producers may also have
better chances at upgrading to higher value activities in South-South value chains as compared
to global value chains connected to Northern consumer markets (Gereffi & Lee, 2014). On the
other hand, developing country suppliers could become locked into even slimmer margins and
cutthroat competition when focusing solely on low-income markets (Kaplinksy & Farooki,
2011).
The global economic crisis also brought about shifts in power in global value chains. Large
companies from emerging markets have sought to regionalise their value chains in order to
assume lead firm positions and dominate the chains similar to multinational corporations, as
for instance South African retailers have done with suppliers in neighbouring countries
(Gereffi, 2014). Similarly noteworthy is the growth and consolidation of large producers and
manufacturers from emerging markets, which has to some degree offset the power of
established lead firms from Northern markets (Gereffi, 2014). China, for instance, has
established itself as a power centre for apparel, footwear and consumer electronic products.
While traditional lead firms continue to occupy strategic positions within global value chains,