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Value chains

Farming in Honduras: going global

by Aviva Freudmann

In brief

Vegetable farming in Honduras

Vegetable farming in Honduras

Farming has traditionally been a low-tech, inefficient business in Honduras. But as the sector becomes embedded in global value chains, this is starting to change.

Globalisation is a continuing source of controversy, with critics describing it as a disruptive whirlwind that harms developing countries environmentally and socially. In Honduras, however, globalisation in the key farming sector is having a positive impact, spurring improvements in products, production processes and small-business strategies, says a new study from the German Institute of Global and Area Studies (GIGA).

“Globalisation has changed trade, opening market opportunities and increasing the competitive pressures for producers in developing countries,” notes the author, Ingrid Fromm, a PhD candidate and research fellow at the Small Enterprise Promotion and Training Programme of the University of Leipzig.

In Honduras, where agriculture comprises 56 % of export earnings and employs 34 % of the labour force, this competitive pressure is having a noticeable and positive impact. GIGA’s survey of 102 small agricultural producers in northern Honduras shows that participation in value chains – that is, adding value to crops before selling them onward to others, who also add value before selling to final consumers internationally – increasingly means making some improvements first, for example investing in people, know-how, processes, equipment, and favourable work conditions, and in general running a better business.

Of the producers responding to GIGA’s survey during the summer of 2006, 64 % had upgraded their products by, for example, growing better varieties of crops. Of those upgrading their products, at least four-fifths reported improvements in productivity, and 67 % saw an improvement in profits. “There is a significant positive relationship between product upgrading and total sales,” Fromm says.

Similarly, almost all producers said they had improved their production processes, by introducing such methods as drip irrigation, greenhouses and mechanised ploughing. About 68 % of respondents said that such innovations boosted their productivity.

Some producers also changed their business strategies, specialising in certain products that offer higher profitability or changing the mix of their activities. The latter, which Fromm calls “functional upgrading”, is a particularly illustrative example of a positive impact of globalisation, since it shows how new know-how and new networks of international contacts can pay off.

Fromm offers the example of a horticultural producer in the Comayagua region who transformed himself from a subsistence farmer to a high value-added provider of logistics services. He started out supplying fresh vegetables to the local market. But as he worked with international buyers, he spotted better opportunities in logistics, and started buying products from other producers, packing them and selling them to higher-end supermarkets, both in his own region and in major cities.

However, most farmers did not make such major changes in their businesses. According to Fromm, fewer than 5 % of respondents had ventured into new market functions, fewer than 12 % into new logistics functions, and fewer than 12 % into new management functions.

Nonetheless, a great deal of learning and transformation has taken place in the industry, under the pressure of finding a niche in an international value chain in order to complete in international markets.

Nearly all respondents said they changed their products, processes or mix of activities in order to remain competitive or meet the demands of foreign buyers. Depending on the closeness of their relationships with buyers, this involved receiving information on product specifications, quality standards, market requirements, environmental protection and food safety, among others. Having made these efforts, 64 % of the respondents said they feel their position in the value chain is more secure.

Aviva Freudmann