Small-scale producers from the MERCOSUR account for 5 million of the region’s agricultural establishments and supply most of its basic food basket. How can they use ICTs to improve access to financing, production, and logistics?
The use of information and communication technologies (ICTs) is key to becoming competitive, accessing new opportunities, and successfully integrating into global value chains. For small-scale producers from the MERCOSUR, who account for 5 million of the region’s agricultural establishments and supply most of its basic food basket, the need for this technology is particularly marked, notably in relation to access to financing, production, and logistics and marketing flows. How can these producers take advantage of new tools to find solutions and improvements to the economic challenges they are facing?
The article “New Technologies and Small-Scale Producers,” by Lucas Arce and Gustavo Rojas, examines this question and the problems and challenges it entails. It provides examples of uses of technology in the agriculture sector in other countries and puts forward potential regionwide lines of action.
The authors argue that globalization is a source of both opportunities and challenges for small-scale agricultural producers. “The creation of a global market for their products and the lifting of tariff restrictions as a result of regional agreements has put new competitive pressure on small producers,” they argue. “On the one hand, technological progress and increased access to technical innovations (such as in the area of ICTs) are giving small producers new tools that they can use to compete in the international market and form part of global value chains.” The authors believe that “the MERCOSUR could be a strategic arena in which to take advantage of new technologies at the regional level. The bloc includes institutional spaces in which government officials, and entrepreneurs, and leading figures from the world of family farming all take part.”
Small-scale producers play an important role in the MERCOSUR in demographic and economic terms. They account for 83% of all agricultural establishments and generate significant numbers of jobs. In fact, “the incomes of around 30 million people (60% of the rural population) in the form MERCOSUR countries are directly linked to small-scale agriculture.”
There are several regional promotion institutions, such as the MERCOSUR Family Farming Fund (FAF-MERCOSUR) and the Regional Exchange Program on Public Procurement in Family
Farming, which were established as part of the MERCOSUR Special Meeting on Family Farming (REAF), a MERCOSUR advisory body which in recent years has put forward regional initiatives to support small-scale production. The FAF-MERCOSUR, in contrast, is a nonrefundable fund administered by the United Nations Food and Agriculture Organization (FAO) which has proposed promoting trade in products from small-scale farms through mutual technical cooperation and FAO support. “This has created significant public policy synergies while encouraging governments to create their own work areas from which to address the issue of family farming,” say the authors.
The article looks at the potential for the use of ICTs in three areas (production, financing, and trade and logistics), the challenges facing each sector, and examples of how these technologies are being used in other countries.
The challenges to production are manifold. “The MERCOSUR has the highest density of agricultural knowledge and research capacity in Latin America. However, while in developed countries the private sector plays an increasingly important part in this process, in the MERCOSUR research financing and the development of technological applications for the agricultural sector is highly dependent on public funding,” say Arce and Rojas. Agricultural extension programs are developed by a network of different institutions in each country which operate in a centralized fashion, which “limits their contact with small-scale producers.” According to the authors, “although we have moved toward developing a new approach to optimizing small-scale production in the MERCOSUR, we have yet to create one that successfully integrates the particular features of family farmers with the growing demands of the international market.”
Digital tools give extension services new ways of providing farmers with knowledge and information. “By cooperating with agricultural research and extension services, organizations such as Green Digital, Grameen Foundation, Reuters Market Light, and Technoserve can provide cheap, timely, relevant information and consultancy services in a way that is easy for farmers in South Asia, Latin America, and Sub-Saharan Africa to process,” the authors say. “Instead of having to travel to the farm, extension service agents use a combination of voice, text, and video messages and other online tools to reduce costs and interact more frequently with farmers. Similarly,
governments use these tools to coordinate the distribution of improved seeds and subsidized fertilizers in remote areas through electronic coupons, such as in the large-scale mobile e-wallet initiative in Nigeria.” As a consequence, “small-scale producers make use of these technologies because they are much less costly than traditional services. A study in India has demonstrated that information provided via farmers’ mobile phones at a cost of just US$0.60 per month was able to change farmer behavior, increasing their knowledge of available crop and input options, such as seeds and fertilizers, and improving their investment decisions and profitability.”
With regard to financing, just 15% of the small-scale producers in the MERCOSUR have access to formal credit programs. However, “the MERCOSUR has extensive cell phone networks and the use of cell phones is widespread. Together with the slow but continual advances in data transmission infrastructure, this mean that the region is fertile ground for the expansion of online financial services through mobile platforms. For those sectors of the population without access to banking services, which is true of many small-scale farmers, these new systems are the first step toward their inclusion in the financial system. These services include payment operations, cashflow management, and sending money within the country. Some have great potential to really transform the sector, such as access to financing, receiving international money transfers, and being paid wages or public subsidies.” Initiatives such as Kenya’s M-PESA system are good examples that may be worth following. M-PESA is a mobile e-wallet service used by more than 30 million people in 2011. Its financial network includes 37,000 agents and nonbanking operators throughout the country, while its banking network has 876 branches and 1,424 ATMs. M-PESA offers services such as money transfers, payments, and transfers to other users, all using mobile phones.
As financing is key to improving the competitiveness of small-scale farmers (among other factors, by facilitating their access to global value chains), MERCOSUR states should support ICT-based financial inclusion schemes. To do so, they need to work on several fronts: building their regulatory framework, improving cell phone network coverage, and incorporating new financial products and services that are in keeping with the reality of life for small-scale farmers.
Thanks to improvements in logistics, food product markets are increasingly being supplied through regional and global agricultural value chains. “However, in developing countries, a large proportion of food products are still sold through informal markets which are supplied by local
farmers,” say Arce and Rojas. They add that, although small-scale farmers in the MERCOSUR may manage to access local value chains, their integration into the international market, which demands products of an increasingly high quality, is much more complex.
As they point out, “new technological advances have lowered transaction costs, increased profits, and minimized waste. New technologies have improved coordination between supply and demand for products, strengthening trade networks and increasing the efficiency with which merchandise is transported to new markets.” Although conditions in the MERCOSUR mean the region is well positioned to take advantage of this progress, “its infrastructure is still lagging behind the rest of the world, which is affecting costs and access to markets and public services for small-scale farmers.” In this regard, Arce and Rojas argue that “building infrastructure is necessary if we want to improve logistics for small-scale producers, given that they tend to be located in less accessible areas.” They go on: “the development of transportation needs to be coordinated with local processing plans, as this gives rise to rapid increases in productivity that derive from better access to markets and public services and reduces the amount of food waste along the chain, among other factors. Better infrastructure needs to come hand-in-hand with soft credit to associations of farmers to be used to buy vehicles and refrigeration systems to facilitate the logistics of their operations.”