August 6, 2020//-One of the most striking images of the coronavirus pandemic is the contrast between farmers dumping milk, smashing eggs, and plowing vegetables back into the soil and consumers facing empty store shelves and long lines at food distribution centers.
How is it possible to have over-abundance on one hand and scarcity on the other?
This article argues it is vital to correct pervasive information asymmetries and transaction costs across a vast food system (Figure 1) to move toward a more inclusive, resilient and sustainable model.
While large-scale industrial food production accompanied by just-in-time supply chains have produced many gains, the hazards of this system are increasingly visible on the horizon.
The digital revolution offers the possibility of an alternative equilibrium, one where small-scale, flexible organizational and production systems flourish and nimbly navigate a changing operating environment.
Small and interconnected may well be our salvation: the hundreds of shallow-draft ships that saved the day in Dunkirk, during World War II, when troops were pinned to the coast and large personnel carriers were no longer seaworthy, come to mind.
All of us, 7.7 billion and counting, participate in the food system in one way or another. We make decisions about the food we consume, the clothes we wear and the products we use – much of which originate in agriculture.
Agricultural goods are produced on 570 million farms, most of them small, run by families, and located in developing countries. Food systems are local, an essential feature in communities—but also global, linked through trade and sophisticated financial and insurance markets.
Figure 1: Information Asymmetries and Transaction Costs Plague the Food System
Source: World Bank
Despite providing food for a world population that has more than doubled over the past 50 years, the food system is severely off course in helping us achieve Sustainable Development Goals related to hunger, poverty, health, land use and climate change. Although we’re producing plenty of food globally, the number of undernourished has been rising since 2014 (Figure 2).
One in five children under the age of five is stunted producing lifelong negative consequences on productivity. Some two billion people are overweight or obese, resulting in noncommunicable diseases of dietary origin that compromise resistance to new diseases such as the coronavirus.
Agriculture contributes 24 percent of greenhouse gas emissions, consumes 70 percent of fresh water, and has caused the loss of 60 percent of vertebrate biodiversity since the 1970s. The cost of these negative externalities is $12 trillion according to the Food and Land Use Coalition, outweighing a market value of $10 trillion.
Now, an additional 100 million people are under threat of poverty because of the economic impacts of the pandemic, according to the June 2020 Global Economic Prospects report, pushing us further from our goals by shrinking incomes and creating food and nutrition access challenges that may result in large-scale famine according to the World Food Programme.
Figure 2: The Food System Is Not on Course to End Hunger
Source: FAOSTAT (2020)
How can we set a new course for the food system – one that reduces hunger and delivers healthy people, a healthy economy, and a healthy planet?
Imagine the planetary system on which the food system depends as an overloaded boat becoming increasingly ‘tippy’ with each additional piece of cargo – population growth, climate change, loss of biodiversity, pollution, land degradation and so on.
With two food security crises in a decade,[i] albeit of completely different origin, we’re wobbling and getting closer to the tipping point. And solving this won’t be accomplished by only jettisoning the latest piece of cargo – the coronavirus.
Multiple factors need addressing. Fortunately, Mother Nature is amazingly resilient and, combined with human ingenuity, will enable us to recover from the current crisis, as it did from previous ones. Let’s take it as an opportunity to shift the course of the food system.
Earlier course shifts in agriculture and food industries, marked by several agricultural revolutions, raised agricultural productivity, increased food supply, reduced real food prices, helped free up labor and capital resources for investment in other sectors, paved the way for urbanization and the industrial revolution, and led to the corporatization of agri-business.
Unlike prior revolutions that originated with on-farm innovations before spilling over to rural communities, and then firms up and down the value chain (think of the use of the cast iron plough during the British Agricultural Revolution; or enhanced seed and fertilizer packages during the Green Revolution), today’s digital innovations are promoting efficiencies at multiple points along the food value chain.
Digital technology drives change on multiple fronts at accelerated rates by collecting, using, and analyzing massive amounts of machine-readable data about practically every aspect of the food system at nearly zero marginal cost.
Digital platforms from Alibaba to YouTube are disrupting traditional business models across the system and Venture capital investors poured $2.8 billion into agtech startups across the globe in 2019.
But digital innovation is only as good as its purpose. To yield positive outcomes, public policy must boost complementary infrastructure and human capacity, address gender access disparities, and pay close attention to environmental benefits — all salient issues that our forthcoming report “Digital Acceleration of Agricultural Transformation” will delve into when it is published in late 2020.
In this article, however, we focus on just three recommendations to accelerate the shift towards a more sustainable food future. Public policies should seek to De-concentrate markets and supply chains, Decentralize traceability, and Disseminate data.
The first D: De-concentrate markets and supply chains
The contrast between food surplus on farms and food shortages in retail markets during COVID-19 lockdowns highlighted high transaction costs and information asymmetries that have long plagued the food system.
Highly concentrated and segmented markets and supply chains generate enormous efficiency gains but make it hard and costly for sellers and buyers to find each other and transact.
Concentration can take many shapes and forms – from concentrated physical markets to concentrated market shares. Both are perilous, particularly in times of crisis.
The Titanic was the biggest, most luxurious state-of-the-art passenger ship when she set sail on her maiden voyage. Everyone thought it was “too big to sink” and we all know how that ended.
In Peru, 80 percent of merchants at a major central fruit market in Lima tested positive for coronavirus. Although it was identified as a point of contagion, authorities felt they could not afford to close the market because it would result in significant food shortages.
In the United States, the retail food sector is increasingly concentrated in a small number of large companies (Figure 3) that may be less agile in adapting to changes in consumption patterns and less resilient to demand shocks.
Still in the United States, the impact of coronavirus on meatpacking workers underscored the scale of meat operations and the very high market concentration of the meat industry, with impacts from closed meat packing plants in Illinois rippling up and down the supply chain.
These problems will likely only get worse as trends toward increasing concentration and segmentation are accentuated by geography and trade politics, contributing to the unique coronavirus-induced surpluses and shortages we are experiencing today.
Figure 3: Retail food markets in the US are thinning
Source: USDA ERS, Calculations from U.S. Census Bureau Monthly Retail Trade Survey, Industry reports; It is updated and adapted from Steve Wood, Revisiting the US food retail consolidation wave: regulation, market power and spatial outcomes, Journal of Economic Geography, Volume 13, Issue 2, March 2013, Pages 299–326
A study that compared transaction data from a digital platform with physical commodity auctions held weekly, and farm-gate prices in the coffee producing regions of India, found that producers obtained significantly higher prices when they sold the commodity through the digital platform rather than at the farm-gate through brokers.
Alibaba’s Taobao online marketing platform described in a recent IFPRI blog is another case in point: The county of Shuyang, where 86 of China’s 4,310 Taobao Villages are located, has undergone “a dramatic transformation from one of the poorest counties in Jangsu province to a well-off landmark for agricultural e-commerce in China.” Thanks to a thriving horticulture industry backed by e-commerce, the county’s GDP surpassed $11 billion in 2018 and 41,000 people were lifted out of poverty.
In the wake of the pandemic, many local authorities and private operators have fast-tracked the move to digital platforms to connect producers and consumers stymied by physical lockdowns: In the state of Kansas, in the United States, social media helped connect ranchers and consumers looking for quality beef after the coronavirus had emptied local meat counters.
In India, the Odisha Rural Development and Marketing Society initiated a system for doorstep delivery of vegetables by producer organizations, using point-of-sale machines for digital payments and electronic weighing machines.
Working in partnership with Odisha Livelihoods Mission, Mission Shakti, partner NGOs, and district officials, the society quickly put in place a delivery model and arranged vehicles and passes from the police for transporting the vegetables, giving more people access to fresh vegetables while protecting farmers’ livelihoods.
In Kenya, the pandemic is giving a boost to companies that had already taken the leap toward digital. Launched in 2014, Twiga Foods, for example, is a mobile-based business-to-business digital commerce platform that matches small-scale supply and demand for fruits and vegetables and cuts out layers of middlemen, thereby eliminating waste and reducing food prices for mass market end-consumers.
An IFC client, the company is using the same technology to make it easier for consumers to access food during the pandemic.
While these digital solutions provide a beacon of hope amid stories of supply chain breakdowns during COVID-19, how robust will their model prove in the long term?
The key going forward is to carefully consider the balance of private and public interests in the de-concentration of platforms in the food system. This is not a new issue – consider traditional farmer’s markets or wholesale food markets.
Both provide physical platforms where producers and consumers interact. What is it going to take to scale this up and make the entire process virtual? The number of markets will increase, affording producers and consumers more options, and so will efficiency through cost reductions.
Consider cattle auctions, where traditional physical exchanges are being replaced by on-farm cameras and in-house monitors facilitating greater market participation and significant logistical and animal health costs savings.
At the same time, the increased flow of information on every process and customer along the agri-food value chain, underpinned by digital verification, will make it easier to certify the trustworthiness of an economic agent and strengthen trust in transactions. Scaling-up the food system through digital platforms is a no-brainer so long as careful consideration is given to the economic and societal impact.
The role of public policy is to prevent accumulation of market power by digital platforms. It is currently unclear whether digital platforms are creating new, highly concentrated market powers that favor incumbents or whether transparent competition is enabling a fair distribution of value.
On the one hand, several factors contribute to increased concentration in digital platform markets such as economies of scale, switching costs and network effects.[ii] Consider Alibaba or Amazon, companies that have grown exponentially in the last decade and are producing a market for consumers and producers to interact across the globe.
On the other hand, economist Barbara Engels makes the case that digital platforms support competition.[iii] She argues that product ranges (such as sales of varieties of apples by different producers) provide for competitive conditions and that platform market conditions are regularly disrupted by innovation (new varieties of apples displacing established ones as market reach expands) and so are perhaps less susceptible to the accumulation of market power as more conventional exchange mechanisms. This has not been proven for the food value chain and justifies further research.[iv]
The second D: Decentralize traceability
Like previous zoonotic diseases such as HIV/AIDS and West Nile Virus, COVID-19 has brought to the fore the strong linkages between animal health, human health and planetary health, and the important role that human activities play by putting people in closer contact with wildlife. Poor management of livestock, unsafe food handling, ecosystem degradation and encroachments on wildlife habitats are responsible for a growing number of ills and illnesses.
Tracing food throughout the supply chain in a decentralized manner creates opportunities for safer, more sustainable food. Safer sourcing of food is important because some 600 million people fall ill after eating contaminated food each year, costing low and middle-income countries $110 billion in lost productivity and medical expenses each year.
Knowing where food comes from and how it was produced allows consumers to make more informed decisions about the impact of the food they consume on their health and the health of the planet. More sustainably sourced food also earns a price premium from environmentally and health conscious consumers who can afford it. This price signal, when transmitted to various actors along the value chain, could in turn incentivize sustainable production practices.
In Uruguay, cows are assigned identification codes and tracked throughout the supply chain. Credit: Flore de Preneuf/World Bank
Consider Uruguay, where growth of beef exports rose an average of 700 percent between 2001 and 2018 (Figure 4). Rising incomes and shifting preferences have been fueling a hunger for beef with a certified provenance that is synonymous with high quality.
Uruguay was able to sate this appetite for premium products thanks to a government that had the foresight to respond to a Foot and Mouth disease epidemic in the early 2000s with improved livestock management practices and the development of a digital information system for livestock information that is free for all users.
Figure 4: Traceable high-quality beef exports are rising
Source: COMTRADE 2020
Critical to the long-term success of this system is the de-centralized design of the distributed ledger, meaning anyone can access the system and use the data, reducing information asymmetries, increasing competition at different nodes, and increasing resilience to fraud and falsifying information.
The system used in Uruguay assigns an identification code to each animal, letting you know its treatment and location on the production chain in real time. Information on individual cows is tracked from farm to freight-on-board, including their travel, feed, medicine and weight-gain, among other indicators. Users not registered in the system can view maps of operators using the system and identify individual cattle by department.
Open access distributed ledger technologies have the potential to transform food supply chains, fingerprinting location, animal welfare, environmental and social inputs, contracts, processing and many other key areas.
Given the complexity of the food system, in addition to technical issues associated with scalability, privacy, and data architecture, this can only be fully realized by ensuring that traceability is fully inter-operable (i.e. the different parts can talk to each other) and governance prevents a race for concentration of market power.
De-centralization of traceability throughout the supply chain will improve incentives for safe, high quality, and socially and environmentally responsible food production and consumption.
The third D: Disseminate open data
Think of the impact of releasing the genetic sequence of coronavirus COVID-19. More than 150 possible vaccines are now being developed by the private and public sectors, some using traditional technologies and others unproven ones.
Open data dissemination throughout the complex food system is also essential to correct information asymmetries, encouraging innovation, and increase the efficiency of public spending.
Kenya, for example, is starting to see a boom in applications that make use of open data promoted under the Kenya Open Data Initiative. With agriculture as a pillar of the economy and food security an over-riding concern, the government decided in 2011 to make core developmental, demographic, statistical and expenditure data available in a useful digital format for researchers, private companies, ICT developers and the public.
The website opendata.go.ke supplies the public with some 942 datasets. Today, Kenya is leading Africa in the agricultural technology space, with the top-rated digital ecosystem and 30 percent of disruptive agricultural technologies in the continent.
The impact of breakthrough technology such as the Global Positioning System developed by the U.S. Department of Defense to assist military forces and now distributed for free is another example of open data delivering significant positive impacts in everything from precision agriculture that allows farmers to put just the right amount of fertilizer in just the right place, to reviews which allow tourists and foodies to locate restaurants in a matter of minutes.
Person using GPS-enabled sensor to track performance of machinery in rice paddy in Pakistan. Photo credit: Flore de Preneuf/World Bank
Open data also promises to enhance the efficiency of the public sector’s support for the food system, at a time when more than a half trillion dollars are invested annually in countries tracked by the OECD.
In 2020, the EU28 is expected to save €1.7 billion in public administration costs thanks to the use of open data. Open data encourages innovative service delivery—NGOs and public agencies can use open data to develop new mobile applications to better serve the population.
Data from farmers helps track the implementation of various measures such as sustainable production and land use plans. And consumer-reported data can help authorities identify food safety issues in close to real time.
Many existing policies, notably in Europe since 2003, prescribe that public sector data – or, data that are of a public-good nature – should be open and reusable.
But several data-related risks may prevent digital technologies from fulfilling their promise: uncertainty about data protection, ownership, security, access, and control; questions of veracity, validation, and liability, and the imbalance in value chains.
Public policy can improve data protection and clarify data ownership, address unfair data practices in agricultural policies, and reduce imbalances in the value chain and related information asymmetries.
It can also promote the sharing of data by the private sector when data is of public interest, monitor and increase the impact of public data, and improve the governance of data sharing.[v]
The coronavirus pandemic hit most countries in early 2020, at a time when the food system was already overdue for a major course correction to improve nutritional and environmental outcomes, and to quicken poverty reduction.
By accelerating the move to digital technologies, physical lockdown measures could provide an unexpected tail wind and usher welcome change.
This is a call for all hands-on deck now, to make sure the policy environment is conducive to digital solutions that bring us closer to achieving our Sustainable Development Goals by favoring de-concentration, decentralized traceability and dissemination of open data.
If we succeed, we’ll be able to leverage the creative energy, innovation and daily needs of the 7.7 billion farmers, businesspeople and consumers that make up the global food system in shifting course toward a more sustainable future.