Improving the performance of fresh value chains for economic development, nutrition and food security: A system dynamics approach : A thesis submitted in partial fulfilment of the requirements for the Degree of Doctor of Philosophy at Lincoln University

Abstract

Improving the performance of fresh value chains (FVCs) for economic development and food and nutrition security is vital in the face of emerging local and global challenges. In addition to securing an affordable food supply, well-performing AVCs improve the incomes of actors along the chain. The extant literature indicates that a severe lack of investments throughout FVCs in emerging economies, resulting in high post-harvest losses, erodes actors' margins and leads to a persistent shortfall in the availability of affordable fruit. This research adopts the System Dynamics (SD) modelling approach as it can measure quantifiable ex-ante impacts in the FVCs and offers a system-wide view that accommodates the complexity, dynamic, and multi-objective nature of the problem. Its moderate demand for data, proficiency, and experience in programming languages, and the relatively less obscure nature of models and results to ordinary decision-makers make SD modelling suitable. This research presents findings of modelling the avocadoes value chain (AVC) from the three major producing areas in the developing country. The primary aim was to identify, analyse, and explain the causes of the poor performance of the AVC and simulate the impacts of selected interventions. The theoretical and empirical literature on AVCs in emerging economies suggests a severe lack of investments by all stakeholders, resulting in high reported post-harvest losses (25% - 40%) that reduce incomes and affordability, causing a persistent shortfall in fruit availability. Various theories indicate factors influencing investment decisions, including profitability, availability of skills and input, availability and cost of finance, and uncertainties created by actors' opportunistic behaviours. An extensive literature review, observations of the AVC activities, in-depth semi- structured interviews, and Group Model Building (GMB) workshops were used to collect data, collaboratively build qualitative and quantitative SD models, and validate the outputs. To build the model, secondary data from several sources was combined with primary data from the interviewees and GMB workshop participants. Quantitative SD modelling identified several feedback loops in play, determining the performance of the AVC. Currently, dominant loops arise from interactions of market realities and efforts of actors to protect and increase their margins. When faced with faced with decreasing margins due to high post-harvest losses, retailers pass parts of these costs to consumers and producers by increasing consumer prices and reducing producer prices. Two dominant loops revealed how producers and consumers push back by decreasing quantity demanded and quantity supplied, swaying prices in their favour. Given the resulting decrease in quantity of demand, bumper fruit supplies reduce producer prices, decrease revenue and margins, and discourage investment in subsequent seasons to cut back on production. Essentially, these loops represent a vicious cycle in which a severe lack of investments leads to remarkably high post-harvest loss and reduced margins that decrease affordability and producer prices, impacting quantity demanded and discouraging investment which ultimately decreases availability. In this vicious cycle, the high post-harvest loss also reduces income to agribusinesses, leading to low economic development and discouraging investment. Comprising all these feedback loops, simulation of the quantitative SD model for the past and future twenty years also revealed persistent low levels of income to actors, affordability and availability, given the high post-harvest loss as a result of the prevailing level of incentives and drivers of the lack of investments. The salient cost of high post-harvest loss, mostly realised at the retailer stage, continues to erode their margins, particularly in distant urban centres, even after continually pushing consumer prices up, reducing affordability. The resulting decrease in quantity demand pushes producer prices down, forcing them to continue cultivating a small number of avocado trees under a low-input production system, limiting the growth in the availability of avocadoes in the whole chain. A coherent set of interventions spearheaded by modernising and organising retail was identified collaboratively. Modernised and organised retailers can assume chain leadership and deploy bestowed customer value and market information to incentivise and sanction other transformed actors to invest, access, and fulfil supply contracts, enforcing implemented quality and fruit handling standards and facilitating the flourishment of agribusiness credit services and efficient payment systems. Scenario analysis suggests that the current trajectory would lead to a worsening of performance even in a plausible best case, while interventions bring about robust positive ex-ante impacts on actors’ incomes, affordability, and availability from improved levels of investments. The research identified several institutional changes needed to effectively implement these interventions, including legislating mandatory fruit quality and safety standards, independent quality-assuring services, and forming hybrid producer organisations and organised retail. The research results contribute a strategic planning input and a platform for dialogue in efforts to build effective AVCs. Results also extend the literature in improving and measuring the performance of AVCs.