Caribbean Agrifood Business Session n°5

Agriculture Trade : opportunities for SMEs and businesses in export markets

Generally, small and medium-sized enterprises (SMEs) play a crucial role in the economic development of Caribbean economies. Collectively, they generate about 60-70% of the Caribbean’s Gross Domestic Product (GDP). They constitute over 70-85 per cent of companies in the Caribbean and account for 50% of employment. In addition, women own 40% of businesses. However, only about 13% of these SMEs export. This suggests that on average the region is not utilising its potential to generate gains from international trade. In addition, Latin America and Caribbean (LAC) SMEs that do export tend to sell only a few products to a very small number of markets. These patterns not only stifle the potential for growth among LAC SMEs that could be attainable through gains from trade; they also render SMEs more vulnerable to domestic business cycles.

Internationalised SMEs outperform firms that do not engage in international trade, employ more workers, pay higher wages, and achieve higher sales and labor productivity than comparable firms that do not engage in international trade. Exporting increases firm productivity, boosts the sophistication of business capabilities, and loosens credit constraints, all of which are key factors for enabling SMEs to grow into large firms that drive trade and job creation. SME entrants that survive and export on a sustained basis can contribute very significantly to their countries’ export growth. These firms are also critical for introducing new products to their countries’ export baskets, and thus play a critical role in export diversification.

Furthermore, export markets drive innovation and investment in Research and Development (R&D) products and processes that meet customer demands. By becoming more productive through exporting, exporters also reap a larger market share in their domestic markets, thus increasing the productivity of the entire economy. SME exporters can generate positive spillovers, such as growth and job creation in the many firms they rely on for inputs, products, and services. In addition, SME exporters are widely found to help create export ecosystems in their home countries by transferring valuable knowledge and skills gained through exporting to non-exporters.

When given the opportunity to enter new markets, SMEs tend to respond more swiftly and flexibly than large firms, and can therefore play a key role in the creation of new exports. In addition, although small firms tend initially to have a lower chance of surviving as exporters, they grow more quickly than large firms if they do survive.