Reardon_et_al_Supermarkets_august_2005.doc

On the other hand retail procurement logistics

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market penetration as noted above, and driving consolidation and multi-nationalization. On the other hand, retail procurement logistics technology and inventory management were revolutionized in the 1990s. It dramatically reduced costs, allowing supermarkets to extend beyond high-price luxury niches in the markets to penetrate the mass market for food. 6 This was led by global chains and is diffusing now in developing regions through knowledge transfer and imitation and innovation by domestic supermarket chains. The logistics changes and other supply chain management by supermarkets were embodied in procurement system change. That change is the crucial link between the supermarket revolution and market conditions of growers, and is discussed next. 3. Supermarket Procurement System Change: Emerging Evidence and Conceptualization of Determinants 3.1. Observed Patterns in the Evolution of Supermarket Procurement Systems There is continuous and rapid change in procurement systems in the supermarket sector in developing regions, which in turn conditions the organizational and institutional context in which supermarkets choose farmers (and wholesalers) and influences the incentives facing and capacities of farmers regarding participation in the supermarket market-channel. Note, however, that this procurement system change has occurred at sharply differential rates over chains in a given country 7 , with the 3-4 leading chains (with usually the majority of the supermarket-market, however) undertaking the lion’s share of these procurement innovations. The second and third- tier chains and independent supermarkets, not to mention the traditional retail sector, continue to depend mainly on traditional brokers and the “spot” wholesale market. Thus, in the early phases of supermarket diffusion, farmers and wholesalers face two very different retail segments – a small set of leading chains with a small share of the food market, undertaking modernization of 6 Supermarkets could then lower prices, first for processed products and very recently for fresh products, competing with small shops and even wetmarkets. D’Haese and Van Huylenbroeck (2005) show that supermarkets have lower processed food prices than local stores in small towns in South Africa. Neven and Reardon (2006) show the same for urban Kenya. We also observe similar prices for commodity vegetables between supermarkets and wetmarkets in several large cities in China (Hu et al 2004), Mexico City (Reardon et al. 2005) and Guayaquil, Ecuador (Zamora, 2004). 7 Note that this sharply differential adoption rate is also common to developed countries; see Kinsey (2004) for evidence from the US. 4
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their procurement systems in ways that condition the requirements and incentives facing producers – and a large set of second-tier chains and traditional retailers with a large segment of the food market, manifesting traditional food market conditions and requirements. As supermarket diffusion occurs, the situation reverses, and farmers face a food market dominated by leading supermarket chains that have or are modernizing their procurement systems in ways we describe below.
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