COMMON FUND FOR COMMODITIES
Postbus 74656 1072 AB Amsterdam
1070 BR Amsterdam
E-mail: Caleb.Dengu@common-fund.org Telephone: (31 20) 575 4971
Internet: www.common-fund.org Telefax: (31 20) 676 0231
CFC/FAO China Workshop Opportunities and Challenges in the World Markets for Fruits and Tropical
Vision for Development of the Horticulture Sector in Developing
Statement by Caleb Dengu – First Project Manager
Common Fund for Commodities th29 November 2007, Guangzhou, China
Trade Promotion Centre, Ministry of Agriculture
Ladies and Gentlemen:
I delighted that finally this workshop is taking place today. It allows us to share our
experiences and opportunities in the Commodity Sector. Let me take this opportunity to thank the
people who have organized this event and the Government of China for providing us this tranquil
environment to conduct our business. Before I get into the day’s business allow me to give you a
brief background about the Common Fund for Commodities. As you may already be aware, the
Fund started operations in 1991 after all countries ratified the CFC Agreement.
The Common Fund for Commodities is an Intergovernmental Financial Institution
established within the framework of the United Nations with a specific mandate to support
developing commodity dependent countries in their efforts to improve and diversify their
commodity production and trade, thereby increasing their export earnings as well as sustain their
real incomes. It is the only International Financial Institution in the world dealing exclusively with
commodities. Currently 106 countries are Members of the Common Fund six Institutional
Members like the European Community and the African Union.
The mission of the Common Fund for Commodities is to address the underlying causes of under-development of the commodity dependent countries including supply capacity problems,
difficulties with effective participation in value chains, lack of diversification of their production
and export base. It seeks to bring about structural transformation and to enable these countries and
their populations to derive maximum benefits from the opportunities afforded to them by the
emerging positive international economic environment.
The Common Fund has recently developed the Third Five-Year Action Plan which would make every effort to contribute towards the achievement of the poverty reduction targets and
objectives of the Millennium Development Goals (MDGs). More specifically, the Fund will aim
at achieving the following objectives in the Third Five Year Action Plan:
- to improve access to markets and reliability of supply for primary products and the
processed products thereof;
- to introduce price and supply risk management schemes;
- to expand processing of primary products in developing countries with a view to
promoting their industrialization and increasing their earnings through moving up
the value addition chain including processing, packaging for the consumer markets;
- to improve the competitiveness of commodities and enhance the cost effectiveness
of commodity production;
- to improve marketing chain including financing services, storage, distribution and
- to improve market structures in the field of commodities of export interest to
developing countries and to address market failures;
- to scale-up the impacts of improved production, processing and marketing
techniques by disseminating them to the widest possible beneficiaries;
- to broaden the range of exportable commodities and their respective chains;
- to encourage the corporate social responsibility of multinational and national
companies engaged in the commodity sectors; and
- to highlight the importance of commodities in economic development and the
concerns of commodity producers.
The Common Fund supports projects that contribute to reducing the economic imbalance between developed and developing countries. These projects should assist in making commodity
chains efficient and assist with diversifying commodity production and trade. We also seek to
improve quality and productivity in a sustainable way. It is our aim to develop predictable
conditions in the commodity trade.The Common Fund finances projects through grant finance,
loan finance or a combination of both grant and loan finance. For further information on role and
operations of the Common Fund you can visit our website www.common-fund.org.
I have outlined the mandate of the Fund but I would like to discuss the Vision of the Fund with
regard to the horticulture sector and how this vision can be realised. Our vision is “To see small
farmers (i.e. less than 5 hectares) becoming the dominant suppliers of fruits and vegetables
to world supermarkets and owning part of the supply chain”
How can that be achieved? – Let me first examine the features of the market structure for fruits and vegetables.
Literally everyone on the planet earth consumes fruits and vegetables but some communities
consume more because of their income levels. Thus the effective demand we are targeting is based
in major urban centres and more wealthy countries. The markets for fruit and vegetables are driven
by the following factors.
(a) Lifestyles – There is a green movement in the world which is promoting the green
revolution. A number of people now eat fruits and vegetables or are vegetarian by
(b) Health Consideration – Every health consultant tell us to exercise and to eat fruits
and vegetables in order to keep our weight in check. One in every two women in
the OECD countries watch their weight because they want to prevent or minimise
the occurrence of diseases like diabetes and obesity.
(c) The good taste of fruits and vegetables – People enjoy fruits and vegetables and are
willing to enjoy and pay for the experience.
The consumers get their fruits and vegetables through supermarkets, open air markets, corner
shops and wholesalers.
In the developed countries and in major urban centres supermarkets are the major distribution
channel for fruits and vegetables. The tight working schedules do not allow the people time to go
to traditional markets for fruits and vegetables. It should also be noted that fruits and vegetables
contribute an average of 35% of profits yet they are only 10-12% of total turnover of major
supermarkets. Thus in the fruits and vegetable section the supermarkets still have the scope and
capacity to mark-up 100-200%. Major supermarkets already arrange their supermarkets such that
customers will start with the fruits and vegetable section when the customer still has the full
shopping budget at his disposal.
The wholesalers buy fruits and vegetables from farmers and export companies for supply to
supermarkets. Thus supermarkets do not contract directly with the farmers but go through a
number of wholesales who undertake to supply certain quantities and qualities in a given week.
When the wholesalers receive the orders from supermarkets they then approach growers to supply
them fruits and vegetables on specific dates. Programming is important because once a
wholesalers has promised to supply on specific date they cannot not delay for a week because
someone else has already been given next week supply. Timing is of the essence.
The wholesalers also deliver to the vendors who sell in the traditional fruits and vegetable markets.
There are markets in all major towns and there are also corner shops in all residential areas. These
are still important channel of distribution.
What are the challenges and opportunities for the small farmers located in developing
In order to supply these markets the following are essential factors.
(a) Logistics – How to move produce from the farm gate to the supermarket.
(b) Cold Chain – How to maintain the temperature at required level from farm gate to
supermarket. You should note that quality does not improve after harvest, it can
only deteriorate hence we need to maintain quality until the dinning table.
(c) Organisation of Producers – The producers should be organised so that they are
able to produce break-even volumes of known quality during the same period. The
supply capacity will depend on the organisation and management. The producers
need access to inputs, labour, land and credit.
(d) Quality Assurance, Certification and Traceability – Supermarkets take heavy
insurance in case a consumer buys poisoned or toxic products. The supermarkets
will be held responsible by various food safety regulations therefore they want to
know the suppliers, varieties, chemicals used and the general hygiene at the farm.
What is the competitive advantage of the small producers located in the Developing
(a) Climate – Tropical fruits and vegetables can only be grown naturally in the tropics.
If produced in North America or Europe they have to be in green houses using
power for heating thereby increasing the cost of production.
(b) Cost Structure – The cost of land is lower than in OECD countries, cost of labour,
cost of power and cost of water make it expensive to grow outside the tropics.
With these critical competitive forces what remains the main challenge is the organisation and
management of farmers. Technology need to be introduced in the organisation and management of
farmers. Technology has brought unprecedented wealth in the last decade but farmers have not
been able to access the fruits of human progress. Let the journey start today.