Value Chain Development for Sustainable/Organic Agricultural Products
Value Chain Development for Sustainable/Organic Agricultural Products
Business Model Description
Through B2B and B2C models, companies can offer their digital platform to farmers at affordable service fees so that farmers can sell their products directly to consumers. This IOA will help increase profitability for farmers from reduced price-cutting by middlemen, give both farmers and consumers greater negotiation power and influence over prices from direct contact with each other.
These business models can also help develop the value chain for sustainable and organic products by giving farmers confidence and clearer insights into demand from consumers and other relevant information services. Investors can invest money in companies or start-ups that develop such digital platforms offering end to end solutions. An example of a company active in this space is:
FarmTo is a start-up, conjoined in 2018 that allows farmers to decide the prices of their products and directly market to consumers. Farmers can tell their stories and origins through the platform in order to help consumers gain confidence in the sustainability, quality, and safety of the products (1). FarmTo has categories for Good Agricultural Practice Standards, and organic products. The products are from rural and remote farms in Thailand and accessed by customers in urban areas, especially in Bangkok. Despite slow growth during the pandemic, as of June 2021, FarmTo had more than 1,500 farmers, especially in remote regions, that had downloaded and utilized the application as a sale channel, and expects high growth during the post-pandemic recovery period.
Expected Impact
Linking the farmers and consumers will help farmers improve their livelihoods and be encouraged to engage in sustainable and organic agriculture.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Thailand: Countrywide
Sector Classification
Food and Beverage
Development need
In the food value chain, farmers face significant challenges including climate change, high labor and production costs, lack of production planning and management, and low productivity (1). From 2002 to 2012 (2), pesticide use in Thailand increased each year by 6.8% with almost 120,000 tons of pesticide being imported in 2010 (3).
Policy priority
Many of Thailand's national policies, such as Thailand 4.0 (4), 13th National Economic and Social Development Plan (5), and Bio, Circular and Green Economy Model (6) aim to improve the livelihood of farmers through technology integration, and good production planning and management.
Gender inequalities and marginalization issues
Approximately 40% of farming households in Thailand are living below the national poverty line of USD 1,066.7 (THB 32,000) per year, and the farming population between 40-60 years old increased from 39% of the workforce in 2003 to 49% in 2013 (7).
Investment opportunities introduction
Agricultural sector is a key sector in Thailand accounting for approximately USD 43.4 billion or around 8.65% of Thailand's GDP in 2020 and employs about 30% of Thai labors (8). Thus, the Thai government has promoted and supported this sector since the first National Economic and Social Development Plan.
Thailand Board of Investment (BOI) provides incentives including exemption of corporate income tax, import duties on machinery, import duties on raw materials used in R&D, import duties on raw materials used in production for export, and non-tax incentives.
Key bottlenecks introduction
Agricultural crops, which often have low value, high risk, and high price volatility, while most of the value added is captured by middlemen and downstream players in the value chain (1). Around 60% of farming households grow one crop per year despite irrigation in the Central region allowing year round crop.
Most farmers also plant monoculture rotation with in-season and off-season rice accounting for 88% of all monoculture rotation (7).
Food and Agriculture
Development need
According to research by Attavanich et al. (2019), Chantarat et al. (2019), Kasikorn Research Center (2019), Rodyong (2019), Kanjanavisut (2020), Soni (2016), and Ricult (2020), farmers face low value added to their crops, low market power from having low influence on the price of their crops, lack of market channels, price undercutting by middlemen, and high logistics costs (1).
Policy priority
The 20 Years Agricultural and Co-Operative Strategy (2017-2036) aims to increase the income of farmers through good management practices, sustainable and smart farming methods, and business administration education to help farmers become entrepreneurs (9).
Gender inequalities and marginalization issues
Many of Thailand's Indigenous communities are involved in agriculture and are often located in rural areas. In 2019, 31.4% of all female workers are employed in the agricultural sector (8).
Investment opportunities introduction
Over the past 5 years, around 342 organic farming projects in Thailand have emerged. Early 2022,
Thai government announced its plan to allocate USD 28 million (THB 851 million) baht to organic farming projects. Of which, 65% will go to projects on production and management, 20% will go to projects on research and development, innovation, database development and knowledge transfer to farmers. Lastly, 15% will go to projects improving marketing and standards. (10).
Key bottlenecks introduction
In 2017, around 50% of farming households owned less than 1.6 hectares (10 rais) of land, and together with a lack of production planning and management, resulted in 50% of the farming households being below the average productivity level (7).
Agricultural Products
Pipeline Opportunity
Value Chain Development for Sustainable/Organic Agricultural Products
Through B2B and B2C models, companies can offer their digital platform to farmers at affordable service fees so that farmers can sell their products directly to consumers. This IOA will help increase profitability for farmers from reduced price-cutting by middlemen, give both farmers and consumers greater negotiation power and influence over prices from direct contact with each other.
These business models can also help develop the value chain for sustainable and organic products by giving farmers confidence and clearer insights into demand from consumers and other relevant information services. Investors can invest money in companies or start-ups that develop such digital platforms offering end to end solutions. An example of a company active in this space is:
FarmTo is a start-up, conjoined in 2018 that allows farmers to decide the prices of their products and directly market to consumers. Farmers can tell their stories and origins through the platform in order to help consumers gain confidence in the sustainability, quality, and safety of the products (1). FarmTo has categories for Good Agricultural Practice Standards, and organic products. The products are from rural and remote farms in Thailand and accessed by customers in urban areas, especially in Bangkok. Despite slow growth during the pandemic, as of June 2021, FarmTo had more than 1,500 farmers, especially in remote regions, that had downloaded and utilized the application as a sale channel, and expects high growth during the post-pandemic recovery period.
Business Case
Market Size and Environment
> USD 1 billion
Market value of e-commerce for food, processed food products, beverages, and agricultural and fishery products in 2018 was around USD 5.5 billion, with an expected growth rate of 26.99% per year (2).
Organic packaged food and beverages in Thailand recorded a value of USD 20.2 million.Thailand ranks 10th in forecasted growth, with an anticipated compound annual growth rate (CAGR) value of 8.5% for the period 2019-2024. The entry of new players and price reductions are making organic products more affordable (9).
Indicative Return
5% - 10%
According to expert interviews, agriculture have high risks from fluctuating quantity of supplies that depend on the weather and seasonal cycles. Specifically, sustainable/organic products have relatively higher production costs than industrial farming.
To cover for the risks and high costs, sustainable/organic products have relatively high prices, which are currently targeted at certain groups of consumers within Thailand that have higher purchasing power and those that are environmentally or health conscious. These factors limit the ROI to be around 5-10%.
Investment Timeframe
Short Term (0–5 years)
According to expert interviews, the investment timeframe is around 3-4 years, due to high marketing costs for the IOA to gain a large enough traction among both farmers and consumers. This is even more challenging for sustainable/organic products that have relatively higher prices.
Ticket Size
< USD 500,000
Market Risks & Scale Obstacles
Market - High Level of Competition
Market - Volatile
Capital - Limited Investor Interest
Impact Case
Sustainable Development Need
Lack of market power including price undercutting by middleman and lack of market channel knowledge for farmers are identified by many research to be challenges in that agricultural value chain. This result in farmers recieving low share of final profits (3).
Areas used for sustainable agriculture increased from 172,800 hectares (1.08 million rais) in 2017 to 184,000 hectares (1.15 million rais) in 2019. Despite the increase, areas used for sustainable agriculture only accounted for 0.77% of the total agricultural areas in Thailand (5). This indicated that conventional agriculture that have unsustainable practices,
such as excess use fertilizers and pesticides, is still much prevalent throughout Thailand, which can cause damage to the health of ecosystem and consumers alike.
"Around 40% of farm households have annual income below the poverty line of USD 1,066.7 (THB 32,000) (12). 30% of farm households have above average and 10% have 3 times higher debt levels when compared to annual farm income/person (12). COVID-19 resulted in 39% loss of income for farm households (12)."
Gender & Marginalisation
"Indigenous communities located in rural areas face difficulties in gaining access to markets and consumers. Indigenous farmers in rural areas have a high tendency to misuse agrochemicals due to a lack of knowledge on sustainable farming method, exposing them to health risks and higher production costs (4)."
Although gender inequality in agricultural land ownership still exists, the situation has improved as female ownership of land for agricultural purposes increased from 36.3% in 2013 to 44.1% in 2019 (5).
Women perform multiple roles in agriculture and play a major role in labour-intensive and manual activities. In addition, women are almost exclusively responsible for post-harvesting (processing) and household activities. By comparison, men are normally responsible for agricultural work that is mechanised or associated with greater income-generating potential.
Cultural traditions and gender stereotyping seriously limit the extent of assistance men provide in manual agricultural work, processing and household activities. (13)
Expected Development Outcome
"The IOA, which drives the value chain to become more oriented toward the producer-consumer relationship, can connect farmers directly to consumers without having to go through the middlemen.
Thus, local farmers can generate higher income from receiving higher share of profits. But they are still able to sell at the appropriate prices that are still affordable and appreciated by consumers."
Sustainable and organic agriculture have higher costs, and can be a barrier for farmers. But being linked to consumers can help farmers have better information about the growing demands for sustainable and organic products that can help them gain confidence and encourage the transition toward sustainable/organic agriculture.
Value chain that links farmers to consumers allows for farmers to gain more income from bypassing middlemen, reflecting the true cost associated with sustainable/organic agriculture in the price, and consumers can directly help farmers improve their livelihoods.
Gender & Marginalisation
Female farmers can benefit from gaining access and directly selling to consumers so they can reduce other works involved such as traveling.
Investment decision with a guidance to prohibit discrimination in all forms, especially in hiring, could help promote equality.
Primary SDGs addressed
1.2.1 Proportion of population living below the national poverty line, by sex and age
6.25% of the total population in 2019 or 4.3 million people (5) According to the World Bank's Thailand Economic Monitor: The Road to Recovery, it is expected that 780,000 more people have fallen into poverty during the pandemic (4). From the recent update, there is now almost 5.1 million people living below poverty line.
Data not available
2.3.2 Average income of small-scale food producers, by sex and indigenous status
2.4.1 Proportion of agricultural area under productive and sustainable agriculture
Farming households have an average annual income per person of USD 2,009 (THB 60,276), but 27% have an average annual income below USD 418.6 (THB 12,559), and 10% have a negative income (10).
184,000 hectares (1.15 million rais) or 0.77% of total agricultural areas in 2019 (5)
USD 1,928 (THB 59,460) per person by 2021 and USD 13,000 (THB 390,000) per person by 2036 (11)
800,000 hectares (5,000,000 rais) in 2021 according to the 12th National Economic and Social Development Plan 2016 - 2021 (11)
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Outcome Risks
Increase in packaging from delivery can lead to more plastic waste being generated, and increase in logistics can lead to higher greenhouse gas emissions.
Impact Risks
Execution risk: High price for sustainable and organic products can be unaffordable for many consumers. High price for getting organic certification also discourages farmers.
Execution risk: Farmers that can access the IOA must have access to the internet, which can be limited for many farmers in rural areas and older farmers.
Stakeholder participation risk: Farmers can face challenges in production capacity from fluctuation in weather conditions that can lead to inconsistent supply.
External risk: High government subsidies on chemicals and fertilizers make sustainable and organic agriculture less economically competitive.
Gender inequality and/or marginalization risk: High cost involved in transitioning from traditional agricultural to organic/sustainable agriculture may limit access to the IOA for low income farmers.
Impact Classification
What
Significant and positive outcomes as sustainable and organic products have better access to the market, which will help them become more accessible and affordable.
Who
Farmers gain more income from better access to the market and are encouraged to practice sustainable and organic agriculture by being linked to the consumers and demand.
Risk
Short-term impact can be small due to the high cost of sustainable and organic agriculture that discourages certain small farmers and consumers.
Contribution
Additional contribution is likely better than base case due to the existing momentum of organic and sustainable agricultural products demand.
How Much
Scale: Target areas of sustainable agriculture. To increase from 184,000 hectares to 800,000 hectares (11, 5). Depth: N/A Duration: Medium-term+AN31+AN32
Impact Thesis
Linking the farmers and consumers will help farmers improve their livelihoods and be encouraged to engage in sustainable and organic agriculture.
Enabling Environment
Policy Environment
13th National Economic and Social Development Plan: Aims to promote overall economic development in Thailand. This policy supports the IOA and agricultural sector by aiming to improve the livelihood, economic and social security,
and effectiveness of farmers through driving value-added agricultural supply chain with safe agriculture, sustainable agriculture, and high value-added agriculture solutions (6).
20 Years Agricultural and Co-Operative Strategy (2017-2036): Aims to increase the income of farmers through good management practices, sustainable farming methods, and business administration education to help farmers become entrepreneurs (11).
This policy supports the IOA by increasing sustainable farming methods through education, and also help farmers gain access to new market channels and consumers.
National Organic Agriculture Development Plan (2017-2021): Aims to educate farmers and consumers about organic agriculture to increase production and demand for organic products, and develop a certification system (14). This policy directly supports the IOA by promoting sustainable agriculture, market demand, and certification standards.
Digital Economy Promotion Agency (DEPA) Master Plan (2018-2022): Aims to increase the knowledge of ICT for the general public and entrepreneurs, and promote growth for technology companies and start-ups (15).
This policy supports the IOA by supporting innovation and helping build ecosystems that will enable growth and surviability of start-ups that include online platform for selling and buying sustainable/organic agricultural products.
Financial Environment
Financial Incentives: Bank for Agriculture and Agricultural Cooperatives offers Green Credits to safe food producers at 7% interest for farmers and 5% for co-ops. Farmers with organic certification, undergo monitoring and to repay on schedule can have 1% interest rebate per year, up to 4% (8).
Fiscal incentives: No fiscal incentives for online platforms. No clear fiscal incentives for sustainable and organic agriculture.
Other incentives: Environment Fund was established under the Enhancement and Conservation of National Environmental Quality Act (1992) to provide interested stakeholders funding of up to USD 166,667 for projects within the focus areas, including sustainable/organic agriculture (http://envfund.onep.go.th/backoffice/uploads/detail/meuns_left/details/file_id_29_2020-01-24.pdf).
Regulatory Environment
Co-Operatives Act (1999) allows for the formation of co-operatives to conduct social and economic activities that will provide benefits to the co-operatives (7).
Co-operatives allow for farmers to pool resources together to accumulate investment capital, reduce cost, achieve economies of scale, and knowledge sharing, which will make transitioning to and growing sustainable/organic agriculture more feasible.
Agricultural Standards Act (2008) regulates quality and safety of agricultural products (7). This regulation supports the IOA as sustainable/organic agriculture will produce crops that are of high quality and safe for the consumers by reducing the use of chemicals.
Food Act (1979) and Consumer Protection Act (1979) regulates and forbids the production and sale of impure and substandard food products, and also covers online sales and transactions (7). This regulation supports the IOA by promoting sustainable/organic products that are produced without or with minimal use of chemicals.
Good Agricultural Practice (GAP) Standard ensures that food crops are safe and are of proper quality, taking into account of the environment, and worker's health, safety, and welfare at every step of the production process (16).
This standard supports the IOA by providing certification for sustainable/organic products for its safety and sustainability that can increase consumers' confidence and demand.
Organic Agriculture Certification Thailand (ACT) is the regulatory body that certifies organic products under different international standards such as International Federation of Organic Agriculture Movements, Canada Organic Regime, and Organic Agriculture Certification Thailand (17).
The ACT promotes the IOA by helping organic agricultural products gain certifications that will increase demand and confidence of consumers, which can even expand to foreign markets.
Marketplace Participants
Private Sector
Farmers, online platform providers (i.e. FarmTo, CPALL, CPN), logistics companies (i.e. SCG Logistics, Grab, Flash, etc.), internet service providers (i.e. TRUE, AIS, 3BB, DTAC), corporate venture capitalists (i.e. Innospace, InVent by Intouch Holding, True Incube, Siri Venture, Unilever Corporate Venture)
Government
Ministry of Agriculture and Cooperatives, Bank for Agriculture and Agricultural Cooperatives
Multilaterals
World Wildlife Fund (WWF), Food and Agricultural Organization (FAO)
Non-Profit
Certifying Bodies, i.e. Organic Agriculture Certification Thailand (ACT), Green Net, BioThai, etc.
Public-Private Partnership
NIA Deep Tech Incubation Program
Target Locations
Thailand: Countrywide
References
- (1) https://www.depa.or.th/storage/app/media/file/investment-bulletin.pd
- (2) https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3269779
- (3) https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0258134
- (4) https://www.boi.go.th/upload/content/Thailand,%20Taking%20off%20to%20new%20heights%20@%20belgium_5ab4e8042850e.pdf
- (5) https://www.ldd.go.th/PDF/DevelopmentPlanNo.13.pdf
- (6) http://stiic.sti.or.th/wp-content/uploads/2018/10/BCG_Final1.pdf
- (7) https://thailand.un.org/th/node/103307
- (8) https://data.worldbank.org/indicator/SL.AGR.EMPL.ZS?locations=TH
- (9) https://www.moac.go.th/moaceng-magazine-files-422991791792
- (10) https://thethaiger.com/news/government-allocates-851-million-baht-for-organic-farming-and-projects
- (1) https://mgronline.com/smes/detail/9630000113115
- (2) https://ap.fftc.org.tw/article/1411
- (3) https://www.depa.or.th/storage/app/media/file/investment-bulletin.pdf
- (4) https://www.worldbank.org/en/country/thailand/publication/thailand-economic-monitor-july-2021-the-road-to-recovery
- (5) https://sustainabledevelopment.un.org/content/documents/279482021_VNR_Report_Thailand.pdf
- (6) https://www.ldd.go.th/PDF/DevelopmentPlanNo.13.pdf
- (7) https://uk.practicallaw.thomsonreuters.com/3-602-5267?transitionType=Default&contextData=(sc.Default)&firstPage=true#co_anchor_a860206).5267?transitionType=Default&contextData=(sc.Default)&firstPage=true#co_anchor_a860206
- (8) https://www.baac.or.th/th/content-product.php?content_id=14262
- (9) https://globalorganictrade.com/country/thailand
- (10) https://www.pier.or.th/abridged/2020/11/#fnref-1
- (11) https://www.moac.go.th/moaceng-magazine-files-422991791792
- (12) https://thailand.un.org/th/node/103307
- (13) https://www.fao.org/3/ae538e/ae538e06.htm
- (14) http://planning.dld.go.th/th/images/stories/section-5/2560/strategy11.pdf
- (15) https://www.depa.or.th/storage/app/media/file/depa-Promotion-Plan-Book61-65.pdf
- (16) https://www.acfs.go.th/standard/download/eng/GAP_Food_Crop.pdf
- (17) https://actorganic-cert.or.th/th/ourservice-th/service/