Supermarkets in the South: Chances and Challenges

- A Debate on the Roles of Different Stakeholders in the Emergence of Modern Market

(Ramkishan Singh, Jisoo Yun)

“Supermarkets are traditionally viewed by development econo-mists, policymakers, and practitioners as the rich world’s place

to shop…”.

(Reardon T. et al., 2003).

Overview

1. General trends of Supermarket diffusion

2. Supermarket as an opportunity for stakeholders

3. A case study in Zimbabwe

4. Supermarket as a challenge for small farms

Three waves of supermarket diffusion

Period Countries /regions

Average share in retail sales

First Wave (early 90s)

Second Wave (mid-late 90s)

Third Wave (late 90s-early 00s)

S.America, East Asia (outside China), &

South Africa

Mexico, C.America, Southeast Asia

China, India, Zimbabwe, and

Vietnam,

From 10% in 90s to 50-60% by the mid 00s

From 5-10% in 90s to 30-50% by the mid 00s

Reached 2-20% by mid 00s; sales growing at

30-50%/yr

General trend(1/2)

Sources: IFPRI policy brief, 2008

Determinants of Supermarket Diffusionin Developing Countries

Demand-side Incentives: Urbanization and women’s participation in outside household workforce. Drop in processed food prices.

Demand-side Capacity: Per capita income growth, along with the rapid rise of the middle class Growth in ownership of refrigerators (ability to store food) Growing access to cars and public transport reinforced this trend. Availability of personal credit. Supply-side: Foreign direct investment (FDI) in the 1990s and after. Internet and technology based logistics and inventory management led to

a huge cost reduction. For example, China Resources Enterprise is able to save 40% in distribution costs by combining modern logistics with centralized distribution.

General trend(2/2)

Supermarket Revolution

= involvement in the change of value chains

Hawkers Vendors

Retailers in traditional markets

Suppliers

Modern retailers

Consumers

Processors

ProducersInput by gov’t/suppliers

S.Market as an opportunity(1/3)

Mutual Advantages

Lipton(2006) Boselie, Henson and Weatherspoon (2003),and Swinnen (2006), have argued that smallholders enjoy several advantages over large commercial farmers (Doole and Lowe, 2001).

1. Labour requirements

2. Increased flexibility to the requirements

3. Geographically dispersed units

4. Marketing messages

1. Security in ordering and payment

2. Market share

3. Better prices & higher margin

4. Economies of scale

5. Learning opportunity

SmallholdersSupermarket

S.Market as an opportunity(2/3)

Impacts on the Stakeholders in Value Chain

Consumers

Traditional retailers

Smallholderfarmers

Processors

Largescale commercial

farmers

Lower price, diverse products, higher quality, food security

Decrease in market share vs. new employment

Supermarket suppliers-LSCF-smallholder linkage

New requirement, increased cost for investment in facilities

Biggest and earliest impact from supermarkets and its spillover to farmers

S.Market as an opportunity(3/3)

Case Study (Zimbabwe)

Case study(1/3)

Remember Zimbabwe was

in the third wave where the average share

of supermarket in retail sales are growing

at 30~50 % per year ?

Case Study (Hortico and Hortico Agrisystem in Zimbabwe)

Benign Dictator

- Private horticultural (FFV) company which sells the products to domestic supermarket as well as international supermarkets primarily in the UK.

- The entire supply chain has been designed to the integration of small producers

- Operates a smallholder outgrower scheme (OGS) which includes 4,000 smallholders

- Averse to group-based contracts : prefer individual smallholder farmers rather than farmers’ groups

- Strict requirement : plot size, type of crops, monopsony

- Supports : supply input on credit, technical advice, training

Case study(2/3)

Lipton(2006) Boselie, Henson and Weatherspoon (2003),and Swinnen (2006), have argued that smallholders enjoy several advantages over large commercial farmers through intermediation and internalization

Government

Private agencies

Small-holders

Establish regulations and laws

Build associated infrastructures

Help small farmers implement requirement ; finance the provision of inputs, provide extension

Activate farmer organization in FFV

Mindset change and capacity building

Case study(3/3)

S.Market as a Challenge(1/1)

Access to markets is key for small farmers to diversify their liveli-hood strategies and earn more (Senyolo et al., 2009 and IFAD, 2003).

Supermarket sweep hits small farmers in developing coun-tries – A survey conducted by the International Food Policy Research Institute (IFPRI)

Supermarkets devour Indian traders – BBC News, Delhi

New procurement system parallel to and outside of the tradi-tional wholesale system led by:

a. Centralised Procurementb. Logistics Improvements (outsourcing logistics and

wholesale distribution function)c. New intermediaries in form of specialised wholesalers

A possible way out…

To prepare small farmers and SME sector to take advantage of opportunities and meet challenges requires special and immediate attention and a redesign of development strategy.

State and other development agencies must understand that “Market-oriented programs and policies” will in fact be “supermarket-oriented.”

Because in any given country in the region, three or four chains can command up to 50% or more of the supermarket sector.

This is an enormous challenge, and demands an urgent review and revision of current ideas, strategies, and practices.

References

Boselie, D., Henson. S. and Weatherspoon, D., (2003). Supermarket Procurement Practices in Developing Countries: Redefining the Roles of the Public and Private Sectors. American Journal of Agricultural Economics, 85(5), pp1155-1161.

FAO, (2003). Potential of Contracting Farming as a Mechanism for the Commerisation of Smallholder Agriculture. [Online] Available at : ftp://ftp.fao.org/docrep/fao/010/ah925e/ah925e00.pdf [accessed 8 February 2014]

IFPRI, (2008). The Supermarket Revolution in Developing Countries. [Online] Available at : http://www.ifpri.org/publication/supermarket-revolution-developing-countries [accessed 8 February 2014]

IFID, (2007). Supermarkets, smallholders and livelihood prospects in selected Asian countries. [Online] Available at : http://www.ifad.org/operations/projects/regions/pi/paper/4.pdf [accessed 8 February 2014]

Reference

IFAD (2003). Promoting Market Access for the Rural Poor in Order to Achieve the Millennium Development Goals Rome. Discussion Paper, In-ternational Fund for Agricultural Development, Rome. http://www.i-fad.org/gbdocs/gc/26/e/markets.pdf

Joyce, C., (2003). The Supermarket “Market” Phenomenon in Developing Countries: Implications for Smallholder Farmers and Investment. Ameri-can Journal of Agricultural Economics, 85(5), pp1162-1163

Ruzivo Trust, (2012). Governance over Fruits and Fresh Vegetables in Zimbabwe: Market Linkages and Value Chain Study, Hanare: Ruzivo Trust

Reardon T., et al (2003). The rise of supermarkets in Africa, Asia, and Latin America. Principal paper session at the American Agriculture Eco-nomics Association, Montreal. http://www.just-food.com/analysis/supermarket-sweep-hits-small-farmers-in-developing-countries_id94085.aspxhttp://www.just-food.com/analysis/supermarket-sweep-hits-small-farmers-in-developing-countries_id94085.aspxhttp://news.bbc.co.uk/1/hi/world/south_asia/6667199.stm