links, technology spillovers to local firms in the same or related downstream or upstream sectors, skills upgrading transferred through the training of and demand for skilled labor, investments in infrastructure, and pro-competitive market restructuring effects. The authors argue that it might be possible that countries with lower income levels benefit more strongly from backward links and technology spillovers, while higher-income countries show higher gains from forward links and skills upgrading.

# **_Integration into Agri-Food Value Chains_**

Food production can be a lucrative business for a wide range of rural workers. Developing an agrifood industry is seen as a strategy to increase income and foster structural transformation.<sup>16</sup> Agribusiness covers input suppliers, agro-processors, traders, and retailers and involves manufacturing and services. Multinational companies engaging in GVCs outsource tasks to developing countries, enabling firms in developing countries to move up the value chain. Most agri-food value chains are largely driven by these lead firms. Increasing participation in agri-food value chains can have significant economywide spillover effects. For example, in India, roughly 10 percent of manufacturing value added occurs in food-related industries, emphasizing strong intersectoral linkages (McKinsey Global Institute 2014). However, small farmers have often been trapped in subsistence farming due to low yields and poor access to markets. But there are some success stories showing that it is indeed possible to upgrade through participation in global and local value chains.<sup>17</sup> (Box 1 highlights success stories in Africa.)

**_<u>Box 1: African Success Stories</u>_**

**Organic certification of coffee and cocoa in Uganda.** Thanks to donor support and a local organic movement supporting contract farming schemes, farmers were able to realize value addition through certification. Certification required new, quality organic products (product upgrading) and changing production processes (process upgrading).

**Fresh fruit and vegetable industry in Kenya.** This is another example of successfully entering value chains through a combination of farming infrastructure and logistical support to Kenyan smallholders. With rising demand for fresh fruits and vegetables, the industry managed process upgrading, including improved packaging forms and product upgrading through matching increasing numbers of standards. Marketing institutions such as the Fresh Produce Exporters Association of Kenya, local producer associations, and self-help groups all encouraged, but not controlled, by the Kenyan government, produced an environment that facilitated contract farming (Minot and Ngigi 2004).

Within agricultural products, productivity growth in staple food crops (for example, maize, rice, or cereals) has the greatest potential for poverty reduction, since these crops are often the single most important component in smallholder farm income.<sup>18</sup> However, limited access to land and capital are among the primary reasons that prevent smallholders from graduation from selfsubsistence farming. Making markets work and enabling farmers to sell their products require a strong public sector policy. Successful government investments in food-processing parks need to

> 16 Reardon et al. (2009). Based on a literature review, the study shows that agri-food farming provides higher earnings than traditional farming (Timmer 2009a).

> 17 UNIDO (2011) provides a detailed discussion of 10 African examples of upgrading in agricultural value chains.

> 18 Using household surveys and agricultural sample surveys, Diao and Pratt (2007) find that for Ethiopia, growth in cereal staple crop productivity has greater potential to reduce poverty than any other agricultural or non-agriculture sector.

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