Logistics in Lagging Regions
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However, in Kenya, for instance, it has been observed in some markets that, although intermediaries can pay producers on the spot, the prices that are offered are lower than in the final market. Again, this has been shown to be the case in the two case study areas.
Managing Risks Dealing with small-scale producers in lagging regions has numerous risks that have to be managed. Several of the risks are more pronounced in agro-logistics supply chains. These include poor infrastructure; poor yields and product availability; price and weather changes; market support systems, such as poor handling and storage facilities; and inconsistencies in the policy framework. For commodities that are exported, international prices may not always make it worthwhile to procure produce for processing and export. Domestic prices could be disconnected from international prices owing to different drivers and could be weather related. The risks related to poor transportation and other logistics problems in supply chains do not always receive sufficient a ention. However, a survey conducted by McKinsey2 indicated that in Brazil, where agro, food, and other supply chains for super markets are reasonably developed, and India, where the supply chains are more rudimentary, managers ranked reliability of supply-chain infrastructure and reliability of suppliers as major concerns. Brazilian respondents to the survey sought to mitigate these risks with greater emphasis on performance contracts with suppliers and service providers. Market intermediaries can absorb some of the manageable risk that the more traditional commercial players may decide not to take. Abni (2004) found that wholesalers would rather pay more at their premises than venture out to the farms because of the high costs of maintaining a vehicle and the frequency of malfunctions as a result of poor roads. This risk avoidance is the key element for the participation of intermediaries who assume the risk of having to pay for truck repairs that were avoided by the wholesaler. Similarly, big horticulture producers who are integrated to large national or regional markets do not buy from small producers because of risk of rejection (middlemen, theoretically, perform this selection function and assume the risks). Reardon and Berdegué (2006) argue that in instances where small farmers do not have the assets, for instance, to meet the requirements of international supply chains, it is common for the proximate intermediary to assist with training, credit, etc. They call for policy interventions to support this group so that they can be er participate in such agro supply chains. The other major systemic risk relates to instability in the policy framework for trading domestically and overseas for corporate entities. For instance, in India, orders have been issued by state governments banning corporate procurement activities and limiting the storage of essential commodities to short periods related to business turnover periods.3 The primary reason for the series of bans on trading was the rise in food prices internationally in 2006–8 and the concern of the central and state governments that traders would corner existing stocks, hoard them, and make a profit later in the year when prices rose further. Meanwhile, prices of staple foods would increase and take them out of the reach of a large section of the populace. Clearly, providing a stable policy framework for corporate activities in agriculture procurement and logistics is important. In addition, subsidy and incentive regimes could also be modified to enhance economies of scale through voluntary association of farmers’ groups in projects.