Review Nepal News

Transitioningre to high-value agriculture through cluster-based development

Review Nepal
  Kathmandu, Nepal      April 06 2021

Kaittisak Kumse, Tetsushi Sonobe and Dil Rahut

Income growth, urbanization, nutritional awareness, and supermarket revolutions in Asia are fueling demand for high-value agricultural products (HVPs), such as vegetables and fruits. This change in consumer demand can provide new agri-food market opportunities, which in turn can contribute to numerous Sustainable Development Goals through increased rural income, rural livelihood improvement, and rural poverty reduction. However, the transformation of Asian agriculture toward the production of HVPs has been slow compared with the changes in market demand. Why is it difficult, especially for smallholder farmers and small agro-processors, to turn the high-quality standards demanded by markets into market opportunities? This is because of a lack of information and knowledge and a lack of access to credit, quality inputs, and machinery (Otsuka and Zhang 2021).

The coronavirus disease (COVID-19) pandemic has accentuated the need for HVP value chain development to generate new income and employment opportunities in rural areas. Moreover, the transition toward HVP-oriented agriculture is essential for achieving the Sustainable Development Goals of no poverty, zero hunger, and good health and well-being. Enhancing farm income is also vital for achieving food security and promoting sustainable agriculture. Therefore, the central question is how to promote the transition toward HVP-oriented agriculture in Asian countries.

One of the most promising strategies is the cluster-based development approach. Clusters are defined as “groups of industries closely related by skill, technology, supply, demand and/or other linkages” (Delgado, Porter, and Stern 2016). A cluster-based development approach involves collaborative actions by groups of companies, governments, and other related institutions to improve the competitiveness of a group of interlinked economic activities in a specific geographic region (Ketels and Memedovic 2008). Sonobe and Otsuka’s (2006) empirical study of cluster-based industrial development in developing countries suggests that a cluster can be an effective institution for HVP value chain development as well. Indeed, Gálvez-Nogales (2010) finds numerous successful agro-based clusters in many countries. 

As an illustration, Figure 1 shows the structure of an agro-based cluster. In the cluster, farmers are entrepreneurs who see their farms as businesses. They are not just farming but operating complicated businesses, employing workers, coordinating the division of labor among teams, and collaborating with outsiders. In other words, entrepreneurial farmers are skillful at not only producing but also grading, marketing, branding, and management. Under the cluster, entrepreneurial farmers and entrepreneurial agro-processors are closely connected through contracts, and they also enjoy linkages with (i) local institutions, such as government agencies; (ii) industries supporting crop cultivation, such as the seed industry; iii) industries supporting crop processing, such as the packaging industry; and iv) other related industries, such as tourism (Otsuka and Ali 2020; Porter 1998).

Income growth, urbanization, nutritional awareness, and supermarket revolutions in Asia are fueling demand for high-value agricultural products (HVPs), such as vegetables and fruits. This change in consumer demand can provide new agri-food market opportunities, which in turn can contribute to numerous Sustainable Development Goals through increased rural income, rural livelihood improvement, and rural poverty reduction. However, the transformation of Asian agriculture toward the production of HVPs has been slow compared with the changes in market demand. Why is it difficult, especially for smallholder farmers and small agro-processors, to turn the high-quality standards demanded by markets into market opportunities? This is because of a lack of information and knowledge and a lack of access to credit, quality inputs, and machinery (Otsuka and Zhang 2021).
 
The coronavirus disease (COVID-19) pandemic has accentuated the need for HVP value chain development to generate new income and employment opportunities in rural areas. Moreover, the transition toward HVP-oriented agriculture is essential for achieving the Sustainable Development Goals of no poverty, zero hunger, and good health and well-being. Enhancing farm income is also vital for achieving food security and promoting sustainable agriculture. Therefore, the central question is how to promote the transition toward HVP-oriented agriculture in Asian countries.

One of the most promising strategies is the cluster-based development approach. Clusters are defined as “groups of industries closely related by skill, technology, supply, demand and/or other linkages” (Delgado, Porter, and Stern 2016). A cluster-based development approach involves collaborative actions by groups of companies, governments, and other related institutions to improve the competitiveness of a group of interlinked economic activities in a specific geographic region (Ketels and Memedovic 2008). Sonobe and Otsuka’s (2006) empirical study of cluster-based industrial development in developing countries suggests that a cluster can be an effective institution for HVP value chain development as well. Indeed, Gálvez-Nogales (2010) finds numerous successful agro-based clusters in many countries. 

As an illustration, Figure 1 shows the structure of an agro-based cluster. In the cluster, farmers are entrepreneurs who see their farms as businesses. They are not just farming but operating complicated businesses, employing workers, coordinating the division of labor among teams, and collaborating with outsiders. In other words, entrepreneurial farmers are skillful at not only producing but also grading, marketing, branding, and management. Under the cluster, entrepreneurial farmers and entrepreneurial agro-processors are closely connected through contracts, and they also enjoy linkages with (i) local institutions, such as government agencies; (ii) industries supporting crop cultivation, such as the seed industry; iii) industries supporting crop processing, such as the packaging industry; and iv) other related industries, such as tourism (Otsuka and Ali 2020; Porter 1998).