The crisis has radically changed market opportunities and the business environment. This session will examine innovative solutions from enterprises to respond to volatility in the market. Amongst these, the experiences of SMEs in the global value chain, access to financing instruments which serve the needs of SMEs whilst facilitating increased economic growth, job creation and entrepreneurial opportunities, and the critical success factors for funding which meets the new realities and the market structures to optimize returns to SMEs along the value chain.
Ms. Tina Joemat-Pettersson, Minister of Agriculture, Forestry and Fisheries, South Africa
Discussion at the second plenary session started from the premise that the agriculture and commodity sectors in developing countries need creative solutions to help them find new markets for export. There was a need to be sure that there was a market for products before production took place, and a need to find innovative new ways of financing to help secure more transactions in a way that benefited all stakeholders.Currently there was a lack of market structure and infrastructure for the agriculture and commodity sectors in the Least Developed Countries (LDCs). The resulting inefficiencies impacted all market participants and kept them from becoming competitive.In the markets, there was insufficient standardization, independent verification, collateral management, commodity financing and transaction data. This resulted in opaque and illiquid markets, putting small farmers and producers at serious disadvantage because it led to lack of financing for smaller players, missed trading opportunities and sometimes significant wastage.Mr. Soumah said that one of the biggest problems in international trade was lack of trust between the various players in the supply chain. At the same time no-one wanted to accept responsibility and undertake obligations. This lack of trust made it difficult for banks to lend on a transaction basis, coupled with the complexity of value chains in developing countries.He proposed an alternative supply chain financing model, focusing on five key stages in the chain: producers, storers, traders, processors and end-users.Mr. Meyer said the crisis had produced a major shift in the availability to banks of conventional security for loans based on balance sheet analysis. For forward-thinking banks, this had led to a 180 degree change in the way they looked at collateral. They were moving towards an approach that recognized that the commodities that are being traded have an intrinsic value that can be used as collateral.Progressive banks were also moving to a position where they could extend credit to traders who historically were unable to obtain credit from banks although they often enjoyed a monopoly in terms of market share in their localities. Now they were being enabled to compete head-on with the large international traders.Mr. Kumar spoke from experience of the SME sector in India which, he said, contributes 40% to the manufacturing sector in the country, valued at some US$ 300 billion, and also 34% of total exports. The sector employed some 35 million people.He said internal liberalization had contributed to spectacular growth of the leather sector in India, which was now worth some US$ 1.5 billion. Affordable finance was very important for the sector, and designated financial institutions such as the Small Industries Development Bank of India had been established to support the SMEs.Mr. Kumar described a triangular arrangement facilitated by ITC between African countries, producing the raw materials for leather goods, India as processor, and Italy as importer. He stressed the desirability of established mutually supportive clusters of SMEs working in the same sector.Mr. Ho described a project in Brunei designed to help the country diversify its economy away from dependence on oil exports through establishment of an Agro-Technology Park and food processing incubator in Brunei with public funding.An important element of the plan was to build up a Brunei Halal brand with a high quality certification process. The incubator would accommodate research and innovative technology applications to support diversification for SMEs and farmers.The aim was to increase both the value and volume of the supply chain, forming production and market joint ventures with firms in the region and eventually, in a second phase, inviting private sector venture capital funds to participate in expansion of the plan in a public private partnership.From the floor, Mr. Metzger emphasized the link between finance and logistics, and warned that few companies really mastered the issue of supply chain management. He agreed with Mr. Soumah that lack of trust and a blame culture in supply chains was a serious problem. Better communication between partners along the supply chain was needed.Mr. Bell said the shipping industry needed more information in order to be able to match capacity to demand. The crisis had caused particular problems with under and over capacity.Chairperson’s summary recommendations: