Agricultural clusters key to making farms more competitive

  • By Leah Lyn D. Domingo
  • 29 May 2020

Smallholder farms and agriculture-based small and medium enterprises (SMEs) stand to become more competitive and to connect with national and international markets when they form agricultural clusters, according to a regional think tank.

According to the Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), more than 80% of food produced and consumed in the developing world come from smallholder farms dominating Southeast Asia.

SEARCA Director Dr. Glenn B. Gregorio explained that at less than five hectares each, these smallholder farms are constrained by their remote and dispersed locations making access to modern technology, services, and information quite difficult. Limited knowledge of the market makes farmers rely on market intermediaries, or middlemen, which further reduce their profit. The farmers lose their competitiveness because of difficulty in accessing financial institutions, modern innovations, and bigger markets to boost their production and income.

In a policy paper co-authored by Gregorio, Rodolfo V. Vicerra, Rico C. Ancog, Nikka Marie P. Billedo, Rebeka A. Paller, Ma. Christina G. Corales, and Imelda L. Batangantang, SEARCA recommends interventions to develop agricultural clusters to help ASEAN farmers overcome roadblocks that include “scattered production, low productivity, inconsistent quality of produce, lack of strong market institutions, high transaction costs, and poor governance.”

The importance of the agricultural clustering approach has been identified as a major intervention in the Philippines to significantly improve yield and income from the agriculture sector according to Undersecretary Rodolfo V. Vicerra of the Department of Agriculture-Philippines, one of the co-authors of the policy paper.

“An effective agricultural cluster requires a strong market connection and value-adding networks that will aid the product flow and development within the market,” the SEARCA team pointed out.

The SEARCA team added that these connections and networks are interlocked by three linkages. First is the horizontal linkage that enables coordination and cooperation within farmer-to-farmer interaction. Second is the vertical linkage that spans the entire breadth of the value chain from production input suppliers to farmers, common production facility, agri-processor for value addition, agri-processor for final product, exporter, and importer. Third is the support linkage that consists of interventions such as training, investment, and subsidies provided by public, private or nongovernmental support service provider.

The synergy of the first two linkages is key to enabling smallholder farmers become competitive and remain competitive, Dr. Gregorio said.

A study showed that vegetable farmers in Mindanao, Philippines had significantly increased their production of and income from sweet pepper, bitter gourd, squash, eggplant, chayote, tomato, Baguio beans, okra, and sword pepper after joining agricultural clusters. SEARCA noted that on the average, the farmers’ income from vegetable production increased by 47% from PHP 4,909/month to PHP 7,192/month.

In addition to realizing the economic benefits of clustering, SEARCA reported that the Malaysian Rice Cluster also logged the added advantage of knowledge transfer among farmers, local enterprises and market, research and development agencies, financial institutions, government agencies, and other marketing firms. Vital information shared included good agricultural practices, the prevailing market risk, source of inputs, and awareness of new technologies and innovation.

Meanwhile, the diffusion of a new technology that increased production among cluster households was demonstrated by the Dong Lieu Root Crop Processing Cluster in Vietnam. While individual household processors were the core of the cluster, technology adoption was greatly influenced by linkages with local engineers within the cluster.

SEARCA thus recommends agricultural clusters as a strategic approach “to operationalize the appropriate channels at a scale necessary for it to have enhanced competitive strength to connect with national and international markets.”

Dr. Gregorio said government agencies and R&D institutions must promote specific institutional interventions to facilitate the intended benefits of the agricultural clusters.

He explained that an umbrella of programs and institutions to support agricultural clusters at the national level can be provided by government. Meanwhile, R&D institutions can serve as “cluster champions” to strengthen the technological capacity of cluster members and promote partnerships.

 “Small is beautiful but big is powerful,” Dr. Gregorio asserted.