The two case studies are featured in Trading Promises for Results: What global integration can do for Latin America and the Caribbean, which traces three decades of liberalization in the region and the dramatic transformations in the production and supply of world food markets.
The bottom line IDB says is: “To succeed in modern agriculture, firms need to innovate and customize products and value chains to changing market requirements. Governments, in turn, must customize the supply of public goods to match private sector needs.”
The new agri-food environment requires modern practices throughout the agricultural system from the farm level through the input and output value chains, supported by efficient lateral services.
“Producers who can satisfy certain standards (food safety, physical properties, environmental, and labor regulations) and insert themselves into formal value chains are considered part of modern agriculture,” the report states.
In addition, a growing world population, the rise of ethical concerns among consumers and diet diversification contribute to dynamic demand for products that meet these “beyond-cost requirements.”
Countries with comparative advantages in specialized products can capitalize on opportunities by ensuring health standards and providing broad access to markets through trade agreements and regional integration. The development of hard and soft infrastructure projects is also necessary to improve production and transaction costs.
Success stories in Peru and Mexico
In both the Peru and Mexico cases, the modernization of production practices, market knowledge, preferential trade agreements and an investment in public goods led to exponential growth.
Peruvian agro-exports grew from less than US$200 million in the early 1990s to US$5 billion today, a boom that IDB says is focused in modern Peruvian agriculture in the coastal regions and not in the traditional agriculture of the Andean regions.
In addition to improved farming practices and favorable natural conditions, contributing factors included international cooperation that started with USAID assistance for asparagus production in the 1990s. Friendly public policies, key irrigation projects, a strong phytosanitary authority and a large network of free trade agreements followed. More recently, blueberries have become the most dynamic product, with exports registering US$350 million in 2017 and expectations of continuous growth.
In Mexico, the use of technology and product differentiation in the private sector and the implementation of preferential trade agreements and health measures by the public sector produced pork exports totaling US$562 million in 2018, 77% of which was exported to Japan. The report notes that the most sophisticated producers are large-scale, vertically integrated, technologically advanced operations that tightly control the value chain.
In all cases, IDB says that success requires ongoing innovation and cooperation in the entire agri-food system: “Market opportunities change quickly, and the private and public sectors need to adapt and work together to take full advantage of those opportunities. That is what customized competitiveness requires.”