Reardon_et_al_Supermarkets_august_2005.doc

Number of medium to large firms capable of delivering

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number of medium-to-large firms capable of delivering consistent quality product at large volumes. This assures “one-stop shopping” for the chains, that is, a given firm is able to supply a diversity of product lines in order to reduce transaction costs for the chain. The chains reap economies of scale from large volumes of processed products moving through their distribution centers, and seek to work with larger firms that can ship to their centers or have their own distribution centers that they can use to distribute to stores. This is an international trend, although seen vividly in the rapidly changing Chinese supermarket sector. Hu et al. (2004) noted an example of a Beijing chain that moved from 1000 to 300 processed food suppliers in one year once they had their distribution center in place and could consolidate suppliers. Dries and 14
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Reardon (2005) note a similar tendency in Russia for dairy products, and Balsevich (2005) for meat products in Costa Rica and Nicaragua. Moreover, the effects on the majority of growers are felt indirectly, via the choice by supermarkets of larger processors, as processed food constitutes half to two-thirds of the food sales of a typical supermarket or hypermarket in developing regions. Second, however, changes in supermarket procurement systems also affect growers directly in the case of fresh fruit and vegetables - and thus the processing sector does not mediate the link between farmers and supermarkets or the wholesalers that serve them, which is why most studies of supermarket effects directly on producers have been (only in the past year) in this category. There have been several recent studies of growers supplying supermarkets, in Kenya (Neven 2004), Nicaragua (Balsevich 2004), Guatemala (Flores 2004 and Hernandez et al. 2004), and Ecuador (Zamora, 2004) for example. The results from these new studies tend to show the following: First, there are small farmers involved in supermarket supply chains in these case study countries. There can be substantial involvement of small growers, such as in commodity tomatoes in Nicaragua and Guatemala and lettuce in Guatemala. Second, however, moreover, just as it is not the poorest and smallest farmers that tend to produce fruits and vegetables, among growers of the latter, it tends to be the upper tier in terms of assets (not necessarily in terms of size , but in terms of physical, human and organizational capital) who supply supermarkets. This is clear in all the cases noted above. By contrast, where small farmers do not have the requisite capital to make the grade, supermarkets tend to reduce the ranks of preferred suppliers to the tier of small farmers who have the requisite capital, or to medium farmers, as illustrated for potatoes in Ecuador (Zamora, 2004) or vegetable producers in Thailand (Boselie, 2002).
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