THE LINK

As farmers in Thailand and Asean face dropping international demand coupled with rising local production and logistics costs, sustainability in Thai agribusiness has become crucial to the future of the food system. The issue is urgent as other developing countries and even poorer ones step up their competition to take food export market share away from established players such as Thailand.

International retailer dominance: The changing global dynamics of demand for safe, high-quality food and the acceptance of the "free market" approach by developing countries have led to an increasing presence of multinationals in all phases of the agrifood system.

Traditionally, globalisation of food sourcing and rising dominance of large retailers was a bad omen for smaller participants who lived in the shadow of tough, uncompromising sourcing policies and unfair or one-sided purchasing practices.

This also applied particularly to "non-traditional" exports (seafood, fruits, vegetables and flowers), often under the direct control of large retailers who dealt with opportunistic traders or collectors rather than growers themselves.

Wrong side of supply and demand: In a market where prices fluctuate, multiple exchange rates affect sourcing decisions, and food quality and safety standards can be applied inconsistently to secure lower prices, farmers who had invested significantly in Good Agricultural Practices (GAP) suffered. They were often overlooked or unfairly compensated in favour of other traditional sources not meeting previously defined standards.

To make things worse, farmers were being paid less for high-quality products during periods of peak production, and during low crop seasons when product quality was lowest, prices were highest, creating an unsustainable trading environment and negative reinforcement for farmers trying to improve quality and food safety.

Matching international versus local standards: Traditionally, international retailers focused on product quality and food safety for exports to Europe, often ignoring basic standards of their own domestic food chains. The same retailers who insisted on a blanket set of standards for international sourcing would turn a blind eye to domestic products that were untraceable and poorly screened for harmful chemicals or biological contaminants. Products were delivered to retail fresh facilities that lacked proper cold-chain or hygienic standards.

Not all gloom and doom: The news is not all bad: some large international retailers in both Thailand and Vietnam have taken the initiative to introduce sustainable sourcing practices, with local farmers and growers supplying the domestic market.

This in effect diminishes the influence and distortion brought about by middleman traders and bypasses the less-hygienic wholesale and uncontrolled wet markets that lack the quality standards the chains require in sourcing for their own international outlets.

It is not easy for modern trade retailers to compete against the traditional trade in fresh produce.

Many second-tier retail outlets and chains happily purchase cheaper products from uncontrolled sources. A lot of these products likely have been transported without refrigeration in grossly overloaded vehicles and previously handled or packed by exploited contract workers.

It is almost impossible for a modern trade retailer in Asia to match prices on properly sourced safe produce, with effective cold-chain practices and traceability against trade channels that cut corners at the expense of quality and safety. Aside from quality issues, farmers supplying these markets are often at the mercy of collector financing, punitive debt burdens, subjective payment terms and rising costs.

Cost versus quality: For a majority of products purchased and consumed in traditional channels such as roadside eateries and local restaurants, food safety and cold-chain integrity mean almost nothing, and any incremental costs associated with improved product handling are lost on consumers.

However, with increasing affluence, food safety awareness and the increasing tendency to store fresh products at home longer and to minimise waste with refrigeration, consumers are willing to pay more for additional value and extended shelf life provided by modern trade retailers. In turn, these same retailers are linking up directly with farmers to improve the overall chain and to share potential benefits. Such programmes include:

- Selecting, training and certifying farmers in GAP in key product groups and sourcing locations. In Vietnam, one major retailer is funding work associated with farmer quality improvement; similar programmes are in place in Thailand.

- Microfinancing by retailers of agricultural equipment, green/net houses, seed, fertiliser and basic packing house improvements.

- Initiatives to forward-order the "whole of crop" production yield of a farmer at pre-agreed or market rates to protect farmers' incomes against harvest-time uncertainty. This avoids having traders only purchase part of the farmers' yields, forcing them to dump unpurchased products at below cost.

- Encouraging development of new varieties and growing techniques to improve overall yields as well as local product assortment.

- Investing in upstream post-harvest logistics infrastructure and proper handling equipment to protect freshly harvested products during transport.

- Fast-tracking payment for certified smaller farmers to ease cash flow.

- End-to-end cold chain handling and elimination of unrecyclable polystyrene and other single-use packaging to reduce costs and ensure environmental responsibility.

Understanding the benefits: These retail agribusiness programmes in place in Vietnam and being implemented in Thailand have had a distinct impact through increased farm-gate revenue. Improved technical performance and competitiveness of local farmers is now evident.

Ensuring collaboration across the overall fresh produce sector with phased harvesting and varietal improvement allows balancing long lead-time production cycles more evenly with the shorter-term demand from retail outlets.

Improved product quality and food safety integrity is now an acceptable cost contribution. Overall we are now seeing a retail fresh produce market with improved awareness by end consumers of food safety and the incremental costs associated with better quality products and a sustainable production base.

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Written in collaboration with Chris Catto-Smith. Tran Van Mathilde Thu is a professional fresh produce supply chain manager working in the region, contact: mtvthuy@hotmail.com. The Link is coordinated by Barry Elliott and Chris Catto-Smith CMC of the Institute of Management Consultants Thailand. It is intended to be an interactive forum for industry professionals. We welcome all input, questions, feedback and news at: Barry.Elliott@inslo.com
cattoc@cmcthailand.org