Supply of Quality and Safe Tropical Fruits Through Efficient Supply Chain TFNet Azizi Meor Ngah Chief Executive Officer Malaysian Agrifood Corporation (MAFC), Malaysia 1
Global trends Push from EU • Market liberalization • Freshness • Trade restructuring • Better quality • Safety assurance • New shopping “lifestyles” • Traceability • Transparency • Increasing power of retailers • “Value for money” • Streamlined supply chains ASEAN countries to follow?
MAFC and Its Mission • A Supply Chain Management Company established in June 2006 with immediate focus at Malaysia’s middle chain (midstream activities) • Catalyzing production by reorganizing and rationalizing the supply side and midstream activities that includes post harvest, value addition and cold chain logistics management, distribution and marketing Mission : “ to shape Malaysia’s food supply chain management, distribution and marketing system towards global standards in safety, quality and sustainability ” In short: MAFC is a commercial outfit trying to realize social outcomes in the pursuit of economic, environmental and social goals 3
Current Value and Trade Flow of FFV in Malaysia and the Channels of Distribution (US 1 billion / year est.)…cartel controlled WHOLESALERS (WHOLESALING ACTIVITIES ONLY) 65% 5 Source: FAMA 2004
Status of FFV Trade in Malaysia: Imbalanced Development Trend in Restructuring the Agri Food Chain ………and its implications on the small producers Small farmers :- Quality, cost, services (grading, packaging) & scale imports Small farmers :- Logistics, marketing risks, services and complaints Upstream Midstream Downstream SLOW RESTRUCTURING BASIC KNOWLEDGE IN POST PRESSURE ON OF FARMING CULTURE HARVEST TECHNOLOGY AND RESTRUCTURING OF MANAGEMENT DEMAND SIDE • Slow to adopt GAP requirements • No leadership in PH skills • Market liberalization (WTO) • Delayed in the • Less developed marketing • Changing dynamics in consumer development of national infrastructure for consolidation taste and preferences GAP to protect local and value adding • Enforcement of food safety and producers and consumers • Cold chain integrity and shelf life traceability • Government intervention in management is still undeveloped • Modernization of food the food chain is largely • Very few logistics operators in processing and retailing focused on upstream FFV with HACCP & GMP • The new lifestyle shopping at • Few success stories in certification MNC food companies and the creating a new breed of 6 supermarkets modern farmers
Risk Management Profile at MAFC Costs of technical Purchasing of Delayed Risks in farmgate prices barriers or land & Viability settlement with ex-CPPC or retail market access of CEF by Retailers prices Seeds and Fertilizers/ Farmgate Post harvest Delivery Retailers Exporters seedlings Chemicals Losses losses defects standards discount Seed costs, supply & viability percentage Contract Shrinkage & Suitability of Branding farming risks pilferage at seeds and Risks Exchange of reneging CCs & R&D cost Marketing of produce Cost vs CPPCs Contract with cash – Benefits risks Contract Farms
The new Malaysian supply chain Large variety of Small variety of agriculture agriculture produce, in small produce, in large volume volume / farms PRODUCTION Fresh produce are Fresh produce processed into are processed variety of product into limited PRODUCTS types in smaller product types in volume (more large volume value added products from raw Products are materials) distributed in DISTRIBUTION small volume at Products are various distributed in large different volume at fewer but channels of the larger channels of market the market TRADITIONAL FRAMEWORK NEW FRAMEWORK TRANSFORMATION Source: FAMA / Innovation Assoc. 2004
SUPPLY CHAIN NETWORK DESIGN – HYPERMARKETS & SUPERMARKETS • Sources of supply to be closest to where the markets are – major Alor Setar / Sg. Petani - 3 towns are in West Coast. Penang & Prai - 9 • Deliver direct from farms to K.Terengganu - 2 customer, if possible. CPPC may need bigger storage space instead Ipoh - 4 of storing at DC • Sourcing & supply strategy – Clustering to maximise lorry load & Major Kuantan - 4 reduce SC cost markets • Get contract farmers to plant what the market requires Klang Valley - 67 Other Johore • Produce can be sourced from towns - 5 places far away from the market Seremban - 6 only if the margin is good • At major towns, Cross Dock Points Malacca - 4 (CDP) with cold rooms can be set- up & use for temporary storage Johor Bahru - 10
MAFC’s Integrated support services to fill the Knowledge Gaps and Marketing Intelligence for inclusive market development Investments Upstream: Investments Midstream: Investments Own production: • Hard infrastructure • 3- compartment 40 • Breeding programme development – CPPCs, footer reefer trucks ROs, DCs • Fertigation technology • Peninsular-wide • Soft Infrastructure – logistics backbone • POC on greenhouse processes, procedures farming / CEF • Dedicated FFV and SOPs, HACCP ‘pipelines’ Upstream Downstream Midstream (POC) (product differentiation) (better value capture) Services: Services: Value Adding Services: • Unbroken cool and cold chain • Extension services & Training • Cold chain logistics services • Feasibility studies for funding/ • One touch system for MNC • Low inventory management financing Retailers • Branding – brand behind • Buy-back arrangement (B2B) • Cross docking facilities brands and own brand • Increase productivity and • Nationwide Warehouse • Market access - local & export income and cold room services • Market intelligence and • First mile transport to CPPC • Consolidation, sorting, Mission Control Room grading, packaging and • Good Agriculture practices services for forward and 10 labeling (GAP) & Food Safety backward linkages
MAFC’S VALUE CHAIN MANAGEMENT UPSTREAM MIDSTREAM DOWNSTREAM MAF C FARM • Post-Harvest Management • Branding OUT PUT • Aggregating, Grading, • Product Differentiation Packing, Packaging • Product & Service CONT RACT • Value-adding Branding F ARMI NG • Cold Chain Integrity • Quality & Safe Food OPE N SOURCING F ROM CE RT IF IE D F ARMS • Marketing – Local & Int’l • ENABLERS • Collaboration with Chain • Controlled Environment Partners (MNC-Retailers] Farming (CEF) • Contract Farming (CF) • ENABLERS • ENABLERS • Corporate Contract • Collection Centres [CC] Farming (CCF) • Consolidation Packaging & • Hypermarkets/ • Processing Centres [CPPC] • Supermarkets • GAP, SALM Compliance • Distribution Centre [ DC] • Food Service Sector • Cold Chain Logistics • Collaboration with Chain • Institutional Markets Partners (DOA-TKPMs, • HACCP, GlobalGAP • Exports FAMA-Contract Farms • Compliance Food Safety, Traceability, ICT, R&D
MAFC’s role in sourcing, value adding, distribution through the building of alliances as in inclusive market development 1. MAFC’s own farms and out grower crops to retailers and food Companies B2B Model 2. MAFC’s anchor tenant to Government cluster farms to Retail gate B2B Model 3. MAFC sourcing from private farms and plantation houses to retail gate B2B Model 4. MAFC’s own flagship crop - new breed papaya ISE B2C Model 12
Finally, a snapshot of a typical MAFC’s Dedicated Crop Commodities ‘Pipeline’ with focus at middle chain control or the ‘Yellow Box’ R&D Inputs, land, production Inputs, farmers, technology, capital, fertigation equipments & machinery Middle Chain Management’ GAP Retailers The Yellow Box Dedicated commodity pipelines CPPC serviced by unbroken cold / cool Institutional MAFC trucks Own Production CPPC Food companies 2 Central 4 Regional Office CPPC Distribution & Sourcing Centers Contract farms Centers CPPC Food service CPPC – Consolidation, Packaging & Processing Sourcing Center Exporters 14 Source; Azizi MAFC (2008)
Fruit & Vegetable Pipelines BUILDING THE PIPELINES SKUs Fruits : Pineapple, Melons, Starfruit, Ambient Pipeline 1 Papaya – Local market Pipeline 2 Cucumber, Tomato, Long Brinjal 10 - 15°C Iconic ISE Papaya 7 - 13°C Pipeline 3 Chillies, Long Beans, French 4 - 10°C Pipeline 4 Beans, Capsicum Cabbage, Lettuce, Leafy 0°C Pipeline 5 Vegetables, Cut Salads Post Harvest CC & CPPC TYPE OF Retail P M Production Transport D B r Ist i a r o s a ACTIVITIES B r Seed d t . Mile k n 2 r u e – B2C i d B b c t i u i n t n i t g o g i o n & n
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