Rice value chain revolution
Last week we introduced the structural, agricultural and dietary transformations that are occurring at different rates throughout Southeast Asia. In this article, we take a closer look at these transformations and learn about the many factors in the rice value chain – from farms, to wholesale and milling, to retail – and consider the policy implications.
Asia’s food systems have undergone a transformation over the past several decades that started with the Green Revolution, which boosted productivity through capital-led intensification using new seeds, chemical fertilizers and pesticides, and irrigation. Now the transformation is spreading beyond the farm.
Upstream, there are burgeoning markets for land rental, fertilizer and pesticides, irrigation water, and seed; farmers are also shifting from subsistence to small commercial farms, and in some areas, land holdings are concentrating. Midstream, in wholesale and milling, a “quiet revolution” is occurring, with thousands of small and mid-size businesses emerging in the wholesale, processing and storage segments, investing in equipment, increasing scale, boosting quality, and among larger mills, building direct relationships with supermarkets. Downstream, a “supermarket revolution” is under way.
All these changes are relevant to food security, even though so far, debates have focused mostly on farms. The study finds that 43% of the total value added of rice value chains, as reflected in retail prices, derive from the midstream and downstream segments, and 57% from the farm segment upstream. This means that the food security debate is missing a large part of the picture.
This analysis is based on data from “stacked” surveys of the value chain segments in seven zones in Bangladesh, China, India and Vietnam. The Vietnam areas studied are a major commercial zone in the Mekong River Delta (in An Giang and Hau Giang provinces) supplying Ho Chi Minh City, and the Red River Delta in the north, tied to Hanoi. The table summarizes the findings.
The surveys show that rice value chains have lengthened geographically to supply growing urban demand, which already dominates food expenditure in Asia. However, the intermediate segment of rice value chains has shortened, as the major traditional role of the village trader has shrunk, while mills, urban wholesale markets and supermarkets are playing ever-bigger roles.
With few exceptions, the transformation of rice value chains is being led overwhelmingly by the private sector. Understanding the interactions of input sellers, farmers, mills, wholesalers and retailers is thus crucial to understanding the drivers of food security in Asia’s rice economy. Still, governments and donors play important roles. Public-sector investments in infrastructure, research and development to improve seeds, liberalization of foreign direct investment in retail and processing, and policies that facilitate the interstate movement of rice are all contributing to the transformation.
The changes appear to have dampened rice price increases, with particular benefits to urban residents. Margins between segments are shrinking, costs are lower overall, and the volume of rice is increasing. However, the available data cover too short a period to assess long-term effects on consumers or to determine which aspects of the transformation most affect consumer prices. Still, the research suggests several opportunities for governments to support these beneficial trends.
One important factor to consider in thinking about the future of the rice value chain transformation is that while rice is still by far the most important staple food in Asia, rice consumption as a share of the diet is declining. Rice consumption is becoming less sensitive to prices, and demand is lower among urban residents and younger generations.
This decline may serve to intensify and accelerate the transformation of rice value chains. Rice suppliers may increasingly have to compete with other grains and other foods; continued investment by mid-size and large rice mills and marketers, combined with flat or declining sales, could lead to more concentration; and the rice market will be increasingly segmented, “climbing the value ladder” to focus on higher-quality rice and special varieties.
Reardon, T., Chen, K. Z., Minten, B., Adriano, L., Dao, T. A., Wang, J. and Gupta, S. D. (2014), The quiet revolution in Asia’s rice value chains. Annals of the New York Academy of Sciences, 1331: 106–118.
Image Source: “Unmilled rice stored in a private warehouse in Thailand” by IRRI / CC BY-NC-SA 2.0
© Stockholm Environment Institute