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Promoting Agricultural Value Chains

In the OIC Member Countries

47

More and more countries are looking for ways to take part in global value chains. The idea is

that participating in world markets provides better avenues for development than

protectionism. Global value chains can offer opportunities such as increased GDP growth, job

creation and diversification into new products and markets. At the same time, the global

expansion of value chains may pose challenges for OIC member countries, specifically the ones

that are considered least developed. Issues such as sustainable development, labour rights, the

regulation of multinational companies, as well as the breath and spread of value chains need to

be considered (Islamic Development Bank (IDB) Group, 2013).

A study by the United Nations Conference on Trade and Development (UNCTAD) reports that

engaging in global value chains is accompanied by higher GDP growth rates. Most sluggish

growth is recorded for countries with a low GVC participation growth rate and low growth of

the domestic value added share of exports (0.7 percent). Higher domestic value addition

without increased participation in GVCs correlates with higher GDP growth (1.2 percent).

However, integration in GVCs without increase in domestic value added seems to offer higher

GDP growth (2.2 percent). The highest GDP growths are recorded for those countries that have

a high GVC participation growth rate and, at the same time, manage to increase their domestic

value added in exports (a median GDP growth of 3.4 percent). In a similar vein, recent UNCTAD

research shows that the share of OECD countries in total value added created by GVCs is found

to be 67 percent. The so-called Newly Industrialised Countries such as Korea and Singapore

capture around 11 percent, BRICS countries comprises 14 percent of which China’s share is 9

percent. The share of the Rest of the World which includes all LDCs and other developing

countries is only 8 percent. Most OIC member countries belong to the latter category. OIC

member countries with the highest shares include Malaysia (0.8 percent of total value added

created by GVCs) and Indonesia (0.6 percent). However, the share of foreign value added is

relatively high for Malaysia (around 40 percent compared with 15 percent for the United

States). Indonesia has a higher domestic value added, driven by a high share of mining

products which feed into other country’s value chains (Islamic Development Bank (IDB)

Group, 2013).

In agriculture, around 16 percent of the world food production enters international trade. This

means that national and local markets absorb most of the food that farmers grow. Most

farmers do not sell on the international market, directly or indirectly. In the OIC, a focus on

regional value chains has been observed of late. Growing demand in OIC Member Countries

make these markets lucrative for other OIC Member Countries. These markets can also be

more attractive for producers based in OIC Member Countries, in particular for small and

medium sized enterprises (SMEs), compared with developed country markets. They also tend

to impose fewer requirements and less stringent standards than developed countries.

Moreover, OIC Member Countries share common relationship networks and cultural norms

that can facilitate trade (Islamic Development Bank (IDB) Group, 2013).