Reardon_et_al_Supermarkets_august_2005.doc

The next category is medium volume bulk products

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The next category is “medium-volume bulk products”: carrots, cabbage, lettuce, onions, and salad tomatoes (together 15% of produce sales) and other main fruit (limes, oranges, papayas, and pineapples). Five years ago, 20% of this category was centralized, now 100%. In 1999, 70% of this category was sourced from the wholesale market – and today only 30% comes from the market (most lime, onions, oranges, papayas) and 70% now come from preferred-list producer- suppliers. Each product has only 1-2 suppliers. The greens and carrots require daily harvest and fast delivery and thus well organized and equipped producers. In some cases, such as lettuce, a large amount of the supply comes from either commercial companies who have smallholder contract schemes, or several small farmer associations that bulk the product from many small farmers and ensure quality (Flores 2004). The next category is bananas, the largest single item (8% of sales), are now sourced from large producer-suppliers. The next category is “low volume greens”: celery, spinach, and herbs such as cilantro and mint. In 1999, 20% were sourced from producer-suppliers and the rest came from the wholesale market, and all non-centralized. By 2004, all but the herbs are centralized and all are bought directly from producer-suppliers, usually small growers near the city, performing the service and labor-intensive care required to grow and deliver these delicate items. The last category category is “seasonal products”: high volume products such as mangoes, and low volume fruits. In 1999, 20% of the mangoes were purchased from preferred suppliers from their own farms, and the rest from the wholesale market; 20% was centralized. By 2004, 100% come from producer-suppliers, and 100% is centralized. In sum, La Fragua has adopted “on average” the four pillars of procurement system change, but with very substantial variation over product types, mainly due to the supply characteristics of the different products at present in Guatemala. The most common changes across products are centralization of procurement through the distribution center and the imposition of private standards of quality; the least commonly shared changes are the shift to preferred supplier systems and away from the wholesale market; the traditional procurement system of sourcing from the wholesale market persists mainly for the set of basic vegetable commodities, albeit with a tendency to focus on several large wholesalers in the wholesale market who can meet quality, consistency, and volume requirements of the chain. Moreover, small farmers figure substantially in product supply to the chain, either through the wholesale market for several key commodity vegetables such as roma tomatoes, or through specialty perishables such as lettuce. By contrast, several medium and large producers are key to the supply of some bulk vegetables, and many fruits. The variation in sourcing over farmer types is driven by transaction costs and access to medium and large farmers willing to supply the supermarkets. It also reflects the size distribution
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