Five Inter-Linked Transformations

Five Inter-Linked Transformations
in the Asian Agrifood Economy:

Food Security Implications

May 18, 2016
2|

4
5|
5
The Economist (EIU)GFSI (Global Food Security Index)

Affordability and Financial Access

Availability

Quality and Safety

6|
6
Affordability and Financial Access
Food consumption as a share of household expenditure
Proportion of population under global poverty line
Gross domestic product per capita
Agricultural import tariffs
Presence of food safety net programmes
Access to financing for farmers

7|
Availability
_1/2
Sufficiency of supply
average food supply, dependency on chronic food aid
Public expenditure on agricultural R&D
Agricultural infrastructure
existence of adequate crop storage facilities, road infrastructure, port infrastructure
Volatility of agricultural production

8|
8
_2/2
Availability
Political stability risk
Corruption
Urban absorption capacity
Food loss
9|
9
Quality and Safety
Diet diversification
Nutritional standards
national dietary guidelines, national nutrition plan or strategy, nutrition monitoring and
surveillance
Micronutrient availability
dietary availability of vitamin A, dietary availability of animal iron, dietary availability of
vegetal iron
Protein quality
Food safety
Agency to ensure the safety and health of food, percentage of population with access to potable
water, presence of formal grocery sector
10|-
10
2014

1 89.3 +1.7
2 85.5 +1.9
=3 84.4 +0.4
=3 84.4 +0.8
5 84.3 +2.7
6 84.2 +0.2
7 84.0 +1.4
=8 83.7 +1.0
=8 83.7 +1.5
10 83.4 -0.6
21 77.8 0
25 73.2 +1.5
42 62.2 +1.2
EIUEconomist Intelligence Unit
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12|
12
Introduction: A Framework to Describe the Transformation of

Food Systems
First Transformation: Urbanization
Second Transformation: Diet Change in Asia
Third Transformation: Food System Transformation in Asia
Fourth Transformation: Development of Rural Factor Markets,
Especially the Rise of the Rural Nonfarm Labor Market
Fifth Transformation: Capital-led Farm Technology
Intensification in Asia
Conclusions and Policy Implications
Introduction
14|Debates on Changing Food Markets_1
Academic debates on changing food markets in

developing countries have tended to focus on three
main themes over the past several decades.
The first theme is the growth of exports and imports

with trade liberalization and globalization, and
sourcing by US and European supermarkets from
developing countries.
The second theme is the transformation of upstream in the

food system, in farming intensification, commercialization,
and diversification and the growth of input markets, for water,
land, and improved seeds.
The third theme is transformation downstream in the

domestic food system, especially the supermarket revolution
and diet diversification and shift toward highly processed
foods with attendant health challenges.
In comparison, there has been far less attention, in

research and more noticeably in policy debates, paid
to the rapid transformation of the mid-stream
segments of agrifood value chains, by which we mean
processing, storage, wholesaling, and logistics.
(The Hidden Middle)

These segments are increasingly important: for

example, Reardon et al. (2012) show that share of the
midstream segments in total margins in rice and
potato food value chains to the capital cities of
Bangladesh, China, and India average 32% for rice, and
42% for potatoes. Those are too important pieces of
the food system to stay hidden from the debate.
18|The Food Security Debate
The food security debate has focused largely on the farm

sector and on trade. Relatively neglected or hidden from
mainstream debate are the middle segments (processing,
logistics, wholesale) of agrifood value chains in developing
countries and yet this midstream forms 30-40% of the
value added and costs in food value chains.
The productivity of the midstream is as important as farm

yields for food security in poor countries.
19|Transformation of the Middle Segments_1
Over the past several decades the middle segments have
transformed quickly and surprisingly with a huge volume
expansion, a proliferation of small and medium enterprises
(SMEs), but also concentrating and multinationalizing (in some
places and products), with technology change characterized by
capital-led intensification, and with the incipient emergence of
branding and labeling and packaging, of new organizational
arrangements in procurement and marketing interfaces with
farmers and retailers, and of private standards and contracts.
20|Transformation of the Middle Segments_2
In an interesting parallel, a similar phenomenon was observed in

the mid-1990s in the US by Schertz and Daft (1994) in their book
about the quiet revolution in food and agricultural markets
where they noted how rapid transformation of the midstream
segments had not only occurred rapidly through the 1970s and
1980s, but that it had also remained hidden to policy debate
that in the US had been also focused upstream on the farm and
input sector ().
A Framework to Describe the
Transformation of Food Systems
22|A Framework_1
Reardon and Timmer (2014) develop a framework to describe
the transformation of food systems in terms of five
simultaneous and inter-linked spatial-economic
transformations in Asia:
(1) Urbanization;
(2) Diet Change;
(3) Agrifood System Transformation: transformation of
the midstream and downstream components of the
agrifood system; rural-urban linkages;
23|A Framework_2
(4) Rural Factor Market Transformation:
transformation of the upstream components of
the agrifood system with accompanying rural
factor market (labor, credit, land) transformation;
(5) The agricultural transformation: technological
and commercial transformation of the farm
segment (intensification of farm technology).
Integrating the Transformations of
24| Five Key Components of the Agri-Food System
25|On Value Chain and Supply Chain
We use the term value chain rather than supply
chain for simplicity of terms; the former has been
associated with quality differentiation and value
added, with viewing the value chain from the
consumer perspective, and the latter, supply
chains, from the supplier perspective with a focus
on efficiency and logistics and coordination
aspects of moving products from farm to fork.
26|A Framework_3
Urbanization and diet change are the downstream demand-
side forces pulling the whole set of transformations,
Factor market and farm technology change are the upstream
supply-side forces feeding the rest of the changes,
The intermediating agrifood system spans all the segments
and intermediates or links supply and demand; Rural-Urban
linkages.
27|A Framework_4
These five transformations are the fundamental drivers
of the overall structural transformation of an economy
as it modernizes, becomes more productive, and
escapes from hunger.
The five transformations are linked in mutually causal

ways in all directionsthe transformation is of an
integrated system rather than piecemeal, independent
changes.
28|A Framework_5
The circuit is driven along by three forces:
(1) urban food demand pulls, and the

intermediation-supply chain communicates that
demand to rural areas and delivers the flow in
the circuit of food products;
29|A Framework_6
(2) profits from farming and income from

nonfarm employment of rural households
(mainly local but also from migration) fund the
investments by farmers in technology change
and by the rural supply chain off-farm
components (distribution and processing);
30|A Framework_7
(3) the above demand and investment funding

would be both stillborn but for the supply
responsesupply of supply-chain and rural
services (like credit and water) in the factor
markets, and of farm output.
31|A Framework_8
The midstream transformation is nestled
among and conditioned by the upstream and

downstream transformations.
The downstream forces are more important

than upstream changes in affecting the
midstream segments.
32|A Framework_9
The food security debate often starts and ends

with farm output, but all the circuit is needed for
food security as an outcome. Thus the food security
debate today is out of sync () with broader
developments in the food system.
First Transformation:
Urbanization
34|Urbanization _1
Rapid urbanization has emerged quickly and

relatively recently in much of Asia. By 2010 the
urban population share in 2010 reached 32% in
South Asia, 44% in Southeast Asia, and 54% in East
Asia.
35|Urbanization _2
But population shares alone underestimate the

importance of urbanization for the food economy: urban
consumers have lower shares of food in total household
expenditure compared with the rural population but
their incomes are sufficiently higher incomes that their
per capita food expenditure is higher.
Urban consumers are responsible for roughly two-thirds
even to three-quarters of all food expenditures.
36|Urbanization _3
The process of urbanization conditions the rural

nonfarm economy and thus in turn the rural part of
midstream activities.
On the one hand, there appears to be more rapid

growth of the rural nonfarm economy in the market
catchment areas of mega and intermediate cities.
37|Urbanization _4
On the other hand, much rural nonfarm activity is

directly or indirectly linked to the midstream
segments such as transport and wholesale of
agrifood products.
But the radiating effects of urbanization can also

cause competition for food-system related rural
nonfarm employment.
38|Urbanization _5
Reardon et al. (2007) note that this competition can

be especially in the midstream segments, as the
intermediate cities are a channel for urban
manufactured food products and services into rural
areas, pitting urban firms with economies of scale
against small traditional food firms in the informal
urban and rural areas.
39|Urbanization _6
Moreover, areas nearer cities experience more rapid

transformation of food value chains, including the
development of the midstream.
A citys food market catchment area can be national or
further, but it appears that in a certain radius the citys
demand pull is strongly felt and the profits from the
urban market induce substantial local investment by
midstream firms.
Farm Household Income in Taiwan
(NT$1,023,248, in 2014)
Due to:
Urbanization
On-farm Income
Commercialization NT$224,858
(22%)
Industrialization
Globalization
Off-farm Income
NT$798,390
(78%)
40
Urbanization and Rural Development
(Goal: Sustainable Food and Nutrition Security)
Socioeconomic environment: Knowledge, Capital,

Agri-Food-Nutrition System
Policies, Tenure, Culture, Legal system, Ethics,

Urban and Industry
Consumers
(City Land)
Food Chain Actors
Land
Off-Farm
Farm Income
Income
(Farm Land)
Rural
Farm Household
Biophysical environment: Water, Energy, Climate, Minerals,

Biodiversity,
Second Transformation:
Diet Change in Asia
43|Diet Change in Asia_1
Diets have been rapidly changing in Asia in three ways, all
important for the development of the midstream segments.
The first change in diets, as incomes have risen there has
been a shift in the food expenditure shares with a decline in
the share of rice and an increase in the shares of meat/fish,
dairy, horticulture products, edible oils, and an increase in
corn and soya use for feeding animals.
This is consistent with Bennetts Law (the desire for a
diverse diet)
44|
Taiwan
65.9kg 70 45.7kg
(1990) 60 (2014)
50
40
30
20
10
0
1990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014
Fig. 2. Rice consumption per capita in major Asian countries, 19902012, using
USDA data (production, supply, and distribution (PSD) database of USDA
Source: Reardon, T., and Timmer, C. P. (2014)
45|
The advantage of looking at rice consumption levels

in the more advanced countries Japan, Malaysia,
South Korea is that they offer a perspective on the
future for the lagging countries Indonesia, China
and India. The future of rice consumption in Asia
will be largely determined by these three countries.
46|
Offsetting the fall in rice consumption in Asia, there

has been a rise in wheat consumptionand wheat
imports. Wheat is still minor in most Asian countries
compared with rice (except in India and China).
47|
Fig. 3. The dietary transformation in Southeast Asia.

Source: Reardon, T., and Timmer, C. P. (2014)
48|
Diet patterns are malleable in Asia, with traditional
food culture appearing to be only moderately
constraining these shifts. Many non-traditional food
products have quickly become traditional and widely
diffused in Asia. For example, Central/South America's
products (potatoes, tomatoes, chili peppers, corn, pine-
apple, papaya) have become leading food items in Asia.
The second change in diets is that rural consumption has

rapidly commercialized (i.e., the share of purchased food in
total food consumed has risen). This bolsters demand for
marketing and logistic services, again part of the midstream.
Reardon et al. (2015) show that rural households on average

buy a large share of their diet. Purchased food in total food
consumed was found to be about 80% in rural Bangladesh
and Indonesia, 72% in rural Vietnam, and 58% in Nepal.
The trend counterpart to an increase in purchased

food by rural households is the rise in the
generation of cash by rural households, from rural
nonfarm employment as noted above, and from
commercialization of farming.
The third change in diets is that, with the rise of

incomes and the rising opportunity cost of womens
time with urbanization, there has been a rapid
penetration of both low and high processed foods
(such as wheat noodles), as well as prepared foods
sold in restaurants.
This has occurred first and most forcefully in urban

areas but with a lag and only somewhat less in rural
areas. This is a major fillip for the supply side
development of processing and marketing as part of
the midstream. The overall processing share rises
with development level and with the degree of
urbanization
53|Linkage with Other Components_1
Diet transformation is also linked to and dependent

on midstream (supply chain) and upstream (factor
market and farm technology and product
composition) transformations. A shift toward more
consumption of non-grain foods and more processed
foods is conditioned by supply side factors that vary
over time, over countries, and over product types.
Imports as a source of food are minor as a share of total food
consumed. Rather, domestic farm supply of non-grains is
rapidly increasing: farmers are undertaking agricultural
diversification toward fruits, vegetables, fish, meat, and dairy
has been proceed- ing apace in Asian countries.
Urbanization and infrastructure development have thus

encouraged that diversification over the past several decades.
Second, domestic supply chain development after

the farm-gate is facilitating the supply of non-grain
products to Asian cities. Supply chain actors (off-
farm) have invested enormous sums in rural-urban
supply chains for non-grain products: storage, pack-
ing, logistics/shipping, and commercial services.
Third, farmers have made enormous investments in

livestock husbandry, fruit and vegetable farms and
associated irrigation, and aquaculture in the past
decade.
Third Transformation: Food
System Transformation in Asia
58|
The food system (a general term for food supply chains
and markets) transformation is taking place along several
lines in Asia. Most important is the transformation of
the post farm- gate segments of the supply chain:
wholesale/brokerage/logistics/cold chain, processing,
and retail. About 5070% of the total costs of food
(depending on the product and the situation) to the
urban consumer are incurred in these segments.
59|
The transformation of the post farm-gate segments

is intimately connected with urbanization, because
the majority of food supply chains in Asia already are
from rural to urban, and many of the post farm-gate
activities are in towns, secondary and primary cities.
60|A Dual Revolution
A Modern Revolutionlarge scale, largely retail and
second-stage processing sector focused transformation,
with an important component of FDI. (
)
A Quiet Revolutionmainly small and medium scale,

largely first-stage processing and wholesale as well as
upstream agricultural servicesmostly based on
domestic capital.
61| Midstream Revolutions _1
These revolutions have been spurred at first by direct

government action, but then after liberalization and
privatization, and after a take-off of urbanization,
income growth, and diet change, and vast
improvement in hard and sometimes in soft
infrastructure, by private sector investment, and for
the domestic market.
62| Midstream Revolutions _2
Policies and public investment have spurred transformation of the

midstream by liberalizing FDI which had a much larger role than
product trade in changing the Asian food value chain midstream; by
putting in place enabling conditions such as roads and electricity to
make profitable the private investments; by introducing new potato
varieties that are more storable and shippable; by putting in place
commercial regulations that improved the domestic food business
climate, and occasionally by subsidizing equipment and plant
investments to upgrade processing and logistics.
Investment
63| in Hard and Soft Rural Infrastructure _1
Government investment in hard and soft rural infrastructure

has helped to increase the length and volume and reduce the
seasonality of food value chains. In turn, this has encouraged
urban diet change and magnified impacts on rural areas.
Distance to urban areas is not just a physical distance but

an economic distance, in the sense that road infrastructure,
toll highways, and train and bus routes, condition the
transport cost of a given distance.
Investment
64| in Hard and Soft Rural Infrastructure_2
In most countries in the region there have been large

expenditures by governments in transport and electricity
infrastructure in the past several decades.
Wholesale market infrastructure is another important

public sector investment. Moreover, markets has been
reinforced by the establishment of the soft
infrastructure of commercial regulations and public
standards.
Investment
65| in Hard and Soft Rural Infrastructure_3
There have also been a large number of modest

investments from the small-medium scale private
sector - by truckers, warehouse owners, millers,
cold storage operators, wholesale traders, and rural
brokers.
Domestic value chain: These have been mainly

aimed at accessing the urban market;
Rapid Transformation of the
66| Wholesale/Logistics Segment_1
This started with rapid growth, then transformation, and then
in some cases decline, of the public wholesale market sector.
State wholesale markets were substantial investments by
cities or provinces, and were put in place in waves mainly
from the 1960s on, starting with main cities, then secondary
cities, and so on. A typical pattern was a hub-and-spokes
model, with a set of primary wholesale markets in big cities
and then feeder or secondary wholesale markets in smaller
cities and rural areas.
The large investments in public wholesale markets
partially transformed this segmentsubstantially de-
fragmenting and integrating markets, by providing
economies of agglomeration and channeling wholesale
from field brokers into a network of covered markets
with in situ wholesalers, and thus also altering its
technology and organization.
The massive proliferation (even into towns) of

wholesale markets, the extension and improvement
of rural roads, and the regulatory liberalization of
their operations in most countries opened the door
to progressive dis-intermediation in the rural areas
and in supply chains.
First Trend, the regulatory changes that have

liberalized the wholesale sector have also favored
direct private sector relations with farmerssuch as
(incipient) development of contract farming by
processors and collection centers by supermarket
chains.
70| Wholesale/Logistics segment_5
Second Trend, the diffusion of wholesale markets in
towns near or in rural areas, and the improvement of
road systems leading from rural areas to urban
wholesale markets, has spurred disintermediation, the
decline of village traders in diverse settings, and
development of direct purchase from farmers by
wholesale market traders who often formerly had to
procure via village trader networks.
71| Modern Wholesale Actors _1
The first of the modern wholesale actors are the

dedicated wholesalers. These wholesalers are
dedicated to either one company or a segment (such
as modern retail, processing, or exports), tend to be
specialized in a category, and handle procurement
relations suppliers.
72| Modern Wholesale Actors _2
The second of the modern wholesale actors are modern
logistics companies. Commonly they undertake a variety of
logistics taskswholesaling (intermediation), warehouse
management, ICT system integration into retail and
distribution systems of companies, cold chain development,
and packaging. FDI hasbeen an important driver of the rise of
this second type of firm; this was spurred with the
liberalization of FDI in distribution (logistics and wholesale)
as part of general liberalization in the 1990s and 2000s.
Rapid transformation of the agrifood
73| processing sector_1
The general debate about food systems fails to

realize how large a share of food in developing Asia
undergoes some processing. Morisset and Kumar
(2008) show for Indian urban areas that only 16.8%
of food undergoes no processing (like fresh whole
fruit); that share is 15.3% in rural areas.
The processed food sector has grown quickly in the

past several decades; this growth is mainly in the
first-stage high value added and the second stage
processed food subsectors, such as milled and
second-stage processed cereals, dairy, processed
meat and fish, and condiments.
These trends are driven by increases in income,

urbanization, women increasing their participation in
labor markets outside the home and wanting to save
time cooking, improvements in packaging and
processing technologies, and eventually by
diversification of the variety of processed foods,
abetted by modern retail.
The public-sector role in food processing has always been
limited (more so than it seems when viewing the large role it
had in public policy debate), and today is very small.
Since the late 1980s (earlier than the supermarket revolution

in most cases), there has been rapid growth in the private-
sector food processing sector in developing Asiacombined
with rapid consolidation, multi-nationalization, and
technological, institutional, and organizational change.
The private sector has made significant investment in
processing. This led to two competing lines of consequences.
On the one hand, there was a proliferation of small and

medium scale enterprise (SME) grain mills and dairy, meat,
fish, and produce processing, encouraged by market de-
regulation, competing for the gap left by the demise of public
sector operations and de-licensing of processing, and
diversifying products for growing urban and rural markets.
On the other hand, privatization led not only to

domestic private sector bids, but due to widespread
liberalization of foreign direct investment (FDI) in
processing, a wave of FDI, as well as domestic
private and domestic state investments in large-scale
plants.
79| Rapid transformation of the retail sector_1
In the1990s and 2000s the take-off of private-

sector modern retail occurredwhat has become
known as the supermarket revolution
(Reardonetal.,2003).

80| Rapid transformation of the retail sector_2
Inside a country, typically the diffusion has spread in the
following two sets of paths: (1) from large cities to small
cities and finally into rural towns in adapted formats, and
from upper to middle to poorer classes; (2) from
processed foods to semi-processed foods to fresh
produce. These paths are essentially the same as
occurred historically (in the 20th century) in developed
countries.
81| Supply Chain Itself is Restructuring_1
Above we note that each segment of the food supply

chains of Asia is transforming; but it is important to
note that overall the supply chain itself is
restructuring. It is at once lengthening
geographically and shortening inter-mediationally.
Food Security Implications?

Lengthening geographically implies that food

markets are integrating over districts in a zone and
zones in a state and states in a country; it also
implies de-seasonalization of the market, such as
Reardon etal.(2012a) show for the potato market in
India, Bangladesh, and China.
Intermediational shortening by contrast implies dis-
intermediations (fewer hands in the chain): this is not
just the cutting out of village traders noted above, but
retailers starting to buy direct from large processors,
processors from farmers in emerging contract farming,
and large retailers and large processors procuring
ingredients via specialized wholesalers
Beside the food supply chain transformation being

influenced by urbanization and diet change as we
discuss above, the chain's transformation itself
influences both downstream transformation (in
urban food markets and diet composition) and
upstream (in factor markets and in farming).
First, supply chain transformation affects urban food
markets and diet transformation. On the one hand,
supply chain changes can reduce urban food costs (via
disintermediation and investments in large scale
operations with economies of scale and larger
procurement zones due to longer supply chains).
Modern procurement systems can reduce food prices
relative to traditional systems.
On the other hand, (geographically) longer supply chains
feeding cities carry risk for cities. Along supply chain
may decrease seasonality of the food supply, but can
exposes the city's food supply to climate shocks (such as
floods along the route) and energy cost shocks (that
weigh more heavily on supply chains with higher
transport costs to begin with).
These shocks can be mitigated by investments such

as: (a) more energy efficient equipment, (b) greater
scale economies to outweigh energy costs; (c)
greater storage capacity such as larger distribution
centers with greater cold storage area; d)
redundancies in supply chain facilities to handle
outages.
Food safety (and bio-terrorism) vulnerability also increases
with longer supply chains and more massive scale of
operation, especially obviously for perishable products.
What seems to be a probable continuation of supply chain
transformation, combined with these frightening and costly
vulnerabilities, imply large investments in coldchain, diversity
of routes, scale, and so onall of which will magnify and
further hasten the structural transformation toward larger
scale enterprises.
Second, supply chain transformation is closely linked

(in both directions) with the development of
upstream factor markets (that in turn condition farm
development) in several ways: (a) supply chain
finance; (b) off-farm employment demand; (c) a
direct source of inputs like farm machinery,
manufactured in cities.
Third, supply chain transformation directly

conditions farm segment transformation in several
ways: (a) most importantly, the degree of
development of the supply chains conditions farm
profitability in general and the potential for
commercialization; (b) the depth of the market.
Fourth Transformation:
Development of Rural Factor
Markets, Especially the Rise of
the Rural Nonfarm Labor Market
92|Rural factor markets_1
Rural factor markets include: (1) labor markets in the farm
sector and the nonfarm sector; the latter also includes
activities in the off-farm components of the agrifood system
like processing, wholesale, and transport; (2) credit markets;
(3) other farm input markets including fertilizer, other farm
chemicals, water, and farm machinery; (4) land rental and
purchase/sale markets. There is strong evidence of the very
rapid development of all of these markets in Asia in the past
10 years.
93|Rural factor markets_2
The rural services of these markets are crucial to
enabling farmer supply response to the developing
urban markets. Rural processing and logistics services,
and credit, water, land, information, and wholesale and
cold store/warehousing are key to farmers capacity to
undertake intensification, commercialization, and
product and quality/safety upgrading.
94|Rural nonfarm employment (RNFE)_1
RNFE employment in general is much more

important to rural Asians than migration
employment and farm wage labor.
RNFE develops especially in proximity to cities and

towns. This is a key point that links discussion of
urbanization and of RNFE in Asia.
RNFE and rural-urban (and international) migration
remittances in turn appear to facilitate purchase of
farm machines and other lumpy investments that permit
diversification.
Also, RNFE and migration remittances are one way

(beside labor-and capital-led intensification) for farm
households to continue to farm very small farms as part
time farmers.
However, urbanization in/near rural areas can be a

two-edged sword for RNFE: urban manufactures,
produced for mass markets using large scale plants
enjoying economies of scale, may compete with
RNFE-supplied manufactures.
Rural nonfarm employment is, surprisingly (given it is
nearly half of rural household incomes in Asia) usually
relegated to only its role in livelihoods and risk and
poverty reduction for rural householdsbut its role in
financing investments in rural services more generally, in
supply chain services in particular, and being a major
funder of farm investments in particular, is neglected in
the debate.
Fifth Transformation:
Capital-led Farm Technology
Intensification in Asia
99| Capital-led Farm Technology Intensification
_1
Over the past three decades in Asia, there has been

intensification-cum- commercialization/diversification:
(1) farms have commercialized; (2) the agricultural sector
has diversified (into non-grains, mirroring the diet
diversification) while individual farms have specialized
(into cropping, or livestock, poultry, aquaculture); (3)
farms have shifted from non-purchased to purchased
input use.
Capital-led
100| Farm Technology Intensification
_2
These changes occurred earliest and fastest in the

classical Green Revolution zones, particularly
lowland rice systems and irrigated wheat areas.
Capital-led
_3
The increase over several decades of the farm wage

drove a continuous rise in the use of farm
machineryfirst for power replacement of human
and animal power, for example in land preparation,
and then control replacement for harvesting and
weeding (with the latter also and especially
addressed by the rise of the use of herbicide).
Capital-led
_4
On the one hand, RNFE and migration remittances

are associated with ownership of machines, as RNFE
provides cash to buy the machines.
On the other hand, using farm machines also frees

labor for both migration to cities and local RNFE; a
similar effect comes from using RNFE cash to replace
home labor on farms with hired farm labor.
Capital-led
_5
Areas that are generating RNFE and migration

remittances can also exhibit capital-led
intensification. This is a complex and sometimes
ambiguous relation.
Conclusions
and Policy Implications
105| Conclusions_1
First, despite the role of local supplies filling local

demand, the openness of economies to
international trade, investment, and global price
signals has been essential to productivity growth on
the farm and along the entire supply chain.
106| Conclusions_2
Second, the public sector budget allocated to

agriculture and the food system is not a reliable
guide to effective public support. In particular,
subsidies for private goods such as fertilizer and
power contribute little to productivity growth in the
longer run.
107| Conclusions_3
Finding the appropriate balance between an effective
public role and an efficient private role in the
modernization of agriculture narrowly and the entire
food system more broadly has always been a difficult
challenge.
To do the right things and not do the wrong things.
on a path of inclusive economic growth.

108| Policy Implications_1
First, significant inter-dependence now exists among

the downstream (urbanization and diet change as
sources of food demand change),
midstream/intermediation (the supply chain), and
upstream (the combination of rural factor/service
markets and the farm segment).
Any food security strategy that focuses on one of

these points of the triangle and neglects the others
will fail in this new era of large urban markets, rural-
urban linkages, and the need for the enabling of
farm intensification and commercialization.
Neither urbanization per se nor farm technology

upgrading per se will be sufficient.
110|
Across developing-APEC economies, there has been a major
transformation of the agricultural and food security landscape
because of rapid urbanization, diet change, and food system
transformation. (By food systems is meant the set of agrifood
supply chains or value chains in a country.)
These trends are closely linked, and present immense

opportunities and challenges for governments and the private
sector that impact the future of food security, rural development,
food markets, poverty reduction, and the environment.
111|
Effective policies for food security and rural development require
a comprehensive approach focusing not only on farms, but also
on the off-farm components (wholesale, retail, processing,
transport and other logistics such as cold chain and warehousing)
of the food system from rural communities to urban centers.
These trends also underscore the need for policy development at

the urban level, reflecting the fundamental importance of
economic relationships between rural and urban areas for rural
development and broad-based growth.
112|Policy Implications_3
Second, the corollary of the first point is that

productivity growth in all five components is
important for overall food security. As emphasized
above, the immediate source ofproductivity growth
is nearly always via private sector investments, but
these are significantly, often critically, conditioned by
the nature of public policies and investments.
Third, because of their interrelation and mutual

facilitation, the overall transformation of the agri-
food sector can be very rapid and complex.
Having an informed vision of these dynamic

interrelationships can sharply improve the potential
to act appropriately.
Finally, it is important to move the food security

debate out of its silosrural development and food
security, food supply chains/agri-business and foods
ecurity, urbanization and rural development.
In the modern world these are bundled and

interconnected. The food security debate should be
too.
115| For Further Readings
Reardon, T. and C.P. Timmer. 2014. Five Inter-Linked

Transformations in the Asian Agrifood Economy: Food Security
Implications, Global Food Security. 3(2): 108-117.
Reardon, T. 2015. The Hidden Middle: The Quiet Revolution

in the Midstream of Agrifood Value Chains in Developing
Countries, Oxford Review of Economic Policy, 31(1), Spring.

Five Inter-Linked Transformations

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Five Inter-Linked Transformations

in the Asian Agrifood Economy:

The Economist (EIU)GFSI (Global Food Security Index)

Affordability and Financial Access

Food consumption as a share of household expenditure

Proportion of population under global poverty line

Gross domestic product per capita

Agricultural import tariffs

Presence of food safety net programmes

Access to financing for farmers

Public expenditure on agricultural R&D

Volatility of agricultural production

Political stability risk

Urban absorption capacity

Quality and Safety

Introduction: A Framework to Describe the Transformation of

Academic debates on changing food markets in

The first theme is the growth of exports and imports

The second theme is the transformation of upstream in the

The third theme is transformation downstream in the

In comparison, there has been far less attention, in

(The Hidden Middle)

These segments are increasingly important: for

The food security debate has focused largely on the farm

The productivity of the midstream is as important as farm

In an interesting parallel, a similar phenomenon was observed in

The five transformations are linked in mutually causal

The circuit is driven along by three forces:

(1) urban food demand pulls, and the

(2) profits from farming and income from

(3) the above demand and investment funding

The midstream transformation is nestled

among and conditioned by the upstream and

The downstream forces are more important

The food security debate often starts and ends

Rapid urbanization has emerged quickly and

But population shares alone underestimate the

The process of urbanization conditions the rural

On the one hand, there appears to be more rapid

On the other hand, much rural nonfarm activity is

But the radiating effects of urbanization can also

Reardon et al. (2007) note that this competition can

Moreover, areas nearer cities experience more rapid

Socioeconomic environment: Knowledge, Capital,

Policies, Tenure, Culture, Legal system, Ethics,

Biophysical environment: Water, Energy, Climate, Minerals,

The advantage of looking at rice consumption levels

Offsetting the fall in rice consumption in Asia, there

Fig. 3. The dietary transformation in Southeast Asia.

The second change in diets is that rural consumption has

Reardon et al. (2015) show that rural households on average

The trend counterpart to an increase in purchased

The third change in diets is that, with the rise of

This has occurred first and most forcefully in urban

Diet transformation is also linked to and dependent

Urbanization and infrastructure development have thus

Second, domestic supply chain development after

Third, farmers have made enormous investments in

The transformation of the post farm-gate segments

A Quiet Revolutionmainly small and medium scale,

These revolutions have been spurred at first by direct

Policies and public investment have spurred transformation of the

Government investment in hard and soft rural infrastructure